When you go through school as a child, you learn all sorts of things about how the world works. You learn how to find foreign countries on a map, how to perform complex equations and even how to analyze literature. You learn things that range from entirely practical to purely intellectual.
For some reason, you don’t learn how to manage money.
That’s starting to change in certain parts of the country, but for the most part even basic financial literacy is something most people have to learn as an adult, on the fly. If you’ve ever frantically researched how to create a budget or balance a checkbook, you’re probably in this camp.
That’s why it’s so important for parents to take an active role in teaching their kids about the basics of money – saving, spending and everything in between. Everyone knows the importance of teaching healthy eating habits and social etiquette, but financial independence will be the greatest indicator of your child’s happiness and stability as an adult. So why not give them the tools to succeed?
Here’s a breakdown of what you can do at different ages to ensure your child is learning what they need to know.
5 years old
Children can start learning about money the old fashioned way: through bedtime stories. Tales such as “The Ant and the Grasshopper” can show kids the dangers of not saving, and other financial pitfalls, in an easy-to-understand way.
Another great way to start is by giving young children a small allowance. For example, if you take them with you while you grocery shop, give them $5 to spend on whatever treat they want. Explain that if they get an allowance, they won’t be able to beg you to buy their favorite cereal.
That’s what wealth coach Rocky Lalvani of Richer Soul was looking to do when he started giving his kids an allowance. They had to allot $1 of their allowance for charity and divide the rest between saving and spending.
“Our goal was to teach our kids how to use money,” he said. “We stopped spending money on them during routine shopping trips. If the kids wanted something like candy or a toy, we said, ‘You have money, spend it.’”
Lalvani said it took time, but eventually his kids understood that they couldn’t ask him or his wife for money. If they really wanted something, they had to buy it themselves. Of course, as Lalvani expected, having to buy their own toys made them more conscientious of the cost.
“They would carry an item around the whole store only to put it down when it came time to pay,” he said. “This behavior didn’t happen overnight or without them making mistakes, but through constant conversations over how best to use your money.”
10 years old
A 10-year old likely isn’t earning any money. If they have an entrepreneurial spirit you could encourage them to earn spending money by starting a lemonade stand, but in all likelihood they’ll still be relying on you for an allowance.
They probably do, however, receive birthday checks and Christmas cash from Grandma and Grandpa or other relatives. Instead of spoiling them with more toys or lavish birthday parties, start depositing that money into a 529 or savings account.
If you’ve already started a 529 for your kid, explain to them what it is, how it works and why it will help them. Most kids don’t understand the intricacies of personal finance, but they can learn why saving for college is important. If they have older siblings or cousins, they might already be hearing conversations about the cost of college.
Personal finance expert Brian Bain of Debt Discipline used his children’s favorite ice cream truck to teach them a basic money lesson.
“I explained that we could spend $8-10 for a single trip to the ice cream truck or take the same $8-10 at the grocery store and buy ice cream for the week” he said. “They liked the idea of having ice cream for the week and saw the value in making the switch. We haven’t had ice cream from the ice cream truck in years.”
15 years old
At 15, your child is probably old enough to get his or her first job, whether it’s mowing lawns around the neighborhood or babysitting for your coworker’s kids. This is still a great time to introduce them to basic budgeting. If they’ve already had an allowance, they might be used to the concept of saving, but now could be a great opportunity to talk about saving money for a big purchase like a car.
Talk to them about how much a car costs, including car insurance, gas and maintenance. Even if you can afford to buy your child a car, it’s worth it to have them learn the discipline of saving. If you’re concerned that they won’t be able to afford a car that’s safe enough, you could give them a goal to shoot for and foot the rest of the bill.
Too often people finance their wants with a credit card instead of waiting until they can pay for it in cash. You’ll be sparing your child a lifetime of bad habits by showing them how to save. If you want, you can also help them open a savings account and learn about the magic of compound interest.
Another good lesson is to teach your child about your own finances. Show them a copy of the mortgage and how it works or what your budget looks like. It’s easy for kids to assume that you have enough money for pay for everything, so explain what your income is and what your expenses are. They might have more of an appreciation for what you do after seeing that your family vacations to Disney World cost $1,000 a person.
18 years old
An 18-year-old is probably applying for college, which is a great excuse to teach them about another financial reality: student loans.
Unless you plan to contribute to your child’s entire education or they’re eligible for a full scholarship, they’ll have to take out loans to pay for school. Use this opportunity to talk about debt, interest and credit.
Find a loan calculator that will show how much they’ll pay every month and how long it’ll take them to pay it off. When you break down student loans to your child, they’re more likely to understand what they’re getting themselves into.
You can also share your own student loan stories or how you got into credit card debt, explaining how debt affects your ability to do fun things like go on vacation or buy a car. Making debt seem real for your kids will help them make choices they won’t regret later.
This is also the perfect age to teach kids about credit cards, the difference between a debit card and a credit card and when it’s appropriate to use one. You can show your kids how you use credit cards, especially if you earn free flights or other rewards. There are lots of ways to get your kids started with their first card, whether it’s a secured card on their own or as an authorized user on your card.
>> READ: Top Credit Cards for Students
Before they get a card, teach them about credit reports and credit scores and how that can affect them for the rest of their lives. For example, show them your credit score and explain why it is the way it is. Tell them about a time when you were denied something because of your score and what it took to raise it.
22 years old
Your child is now a college graduate, hopefully self-sufficient, and likely about to start their first real job. If you helped them during college, now’s the time for them to spread their financial wings and fly.
Your kid will likely still have some questions about money. Start by giving them a rundown of what they’ll need to know about starting a real job. Before they accept a position, ask them about the total compensation, including salary, bonus, overtime and commission. They should also note the benefits they’ll receive, such as retirement plans, vacation days, health insurance, tuition reimbursement and more.
If they get several job offers in different parts of the country, show them a cost-of-living calculator so they can compare each offer accurately. A $100,000 job in San Francisco might be a worse option financially than a $60,000 job in Jackson, Mississippi, for example.
Explain the surprising costs they might forget about, like paying a security deposit for an apartment, getting their car serviced or paying for health expenses out of pocket.
You may think it’s a little early to have the retirement talk at 22, but eventually you’ll want to talk to your child about their plans for the distant future. With the way people are struggling to build a nest egg these days, 22 is probably the perfect time. Ask them if they’re contributing to a 401k plan at work, or putting money into an IRA. Starting early is the best way to ensure a comfortable retirement, so anything you can do to encourage healthy saving habits will benefit them long after you’re gone.
>> READ: 6 Things to Always Be Saving For
The bottom line
When you talk to your kids about money, make sure they knew that you’re always willing to help and answer their questions. Be ready for them to make financial mistakes and don’t make them feel bad when they mess up. By keeping an open dialogue with them, you’ll create an environment where personal finance isn’t something to be scared of.