Stedman Payne is an experienced financial professional who serves as Member One’s Market Executive in the Lynchburg area. His financial educational series offers tips for making smart decisions when it comes to managing your finances.
With school out for the summer, the kids are likely hanging around the house more than usual. Whether you realize it or not, your little audience is paying attention to your every move, which includes how you manage finances. I’m here to offer some tips for teaching responsible spending and saving to help your kids get started on the path to financial success.
Q: What do you recommend as a first step in getting my child started on a path to financial success?
SP: My primary tip is to set an example. Parents who make poor financial decisions such as impulse purchases, excessive credit card use, or have arguments about finances only confuse children about how to make smart money choices. Make a point to practice what you preach by not only explaining positive financial habits but demonstrating them as well. Teaching concepts like spending less than you earn, paying down debt, and saving for larger financial goals are all valuable lessons that are best learned early in life. These lessons will make an even bigger impact if the entire family, including older siblings, is also committed to the cause.
Q: What’s the best age to start teaching my child about financial responsibility?
SP: It’s never too early to begin. Once children start saying “I want,” it’s a good time to teach positive spending and savings habits. While they won’t understand complex concepts like compound interest or annual percentage yield, you can explain how we sometimes have to wait for the things we want. Try setting up various savings goals – long term for college and short term for expensive toys or hobby kits. Every time they get money for their birthday or from an allowance, have them put some into each savings pot. This will help reinforce the concept of saving and delayed gratification, which is an important lesson to learn.
Q: Do you have any tips for giving children an allowance?
SP: Instead of giving your child an allowance, try teaching them that money should be earned. There’s nothing wrong with giving your child money each week, but have them earn it by performing chores like mowing the lawn, taking out the trash, or doing dishes. Younger kids could help by making their bed, matching socks, or dusting around the house. This will teach them the value of work and prepare them for adulthood, including starting a job outside of the home.
Q: Once my child starts earning money, how do you suggest we teach them to manage, spend and save it?
SP: Try to make it visual. For younger children, give them transparent jars to keep their money in so they can see their progress. For older children, it’s wise to open a savings account with a local credit union. Online banking can help them easily monitor their progress. Once you’ve determined how to manage the money, the next step is to set a savings goal. It’s much easier to put away money when you know what you’re saving for. If your child wants a game or pair of shoes, show them how much it costs and how long it will take before they can buy the item. You can also show them ways to reach their goal faster by earning more money through additional effort.
Q: Do you have financial management tips for older children who are in their teenage years?
SP: As your children get older, they may start earning money outside the home through babysitting or working a part-time job. This is when it’s more important than ever to reinforce the concept of depositing their hard-earned money into a bank account. Another financial milestone for older children who are in their teenage years is getting a credit card. The first credit card can be exciting, so it’s important to explain responsible credit card use. Make sure your child knows how to use the credit card wisely and warn them that they should only make purchases if they can afford to pay off the balance each month. It’s also important to explain what credit is and how it affects their future—from buying a car to getting their first mortgage.
Tags: Finance
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