Investing the time and effort to teach young people about money can pay big dividends in more ways than one. Teaching young people how money works can also present an opportunity to teach young people lessons about responsibility, planning for the future and other life lessons.
More and more young adults are falling into debt. In fact, more students drop out of college as a result of credit card debt than academic failure; they find themselves in debt and are unable to get jobs to pay that debt off.
From the latest electronic gadgets to high-priced clothing and accessories, teenagers are being seduced into buying items they can't afford. According to a study conducted by a major credit card company, 78 percent of parents say their high school student does not have a budget.
More than 83 percent of college students have at least one credit card, with an average balance of $2,300. Compounding the problem, the average college student receives an estimated 15 credit card solicitations per week.
One thing to consider is that different topics are best addressed at different ages. Here are some tips:
Age 3-5: Keep It Concrete.
Use cash around preschoolers-credit cards are too abstract. Let them collect coins in a clear container so they see the money. For starters, try showing a child that five pennies equal a nickel.
Age 6: Make Allowances.
Now is the perfect time to start a weekly allowance. Many kids begin with an allowance of about $5 a week until age 8. Some parents use a formula based on age. For example, an allowance of $6-a -week at age 6.
Age 9-10: Budget Time.
Introduce them to a basic household expense budget. Open a savings account for them if you haven't already.
Age 11: Take Stock.
Help them understand stock market basics-such as why prices go up or down. Teach them about compound interest.
Age 12: Responsibility Rules.
Extend their weekly allowance to twice a month. Have them begin earning money outside the home (babysitting, mowing lawns, etc.) Open a checking account for them.
Age 13-15: Take the Plunge.
Compile a list with your child of what you expect his or her allowance to cover (friends' birthday gifts, entertainment, etc.) and use that total when determining allowance. Introduce them to credit with a debit or prepaid card. A prepaid card is normally the first step.
Age 16-18: Future Focused.
If your child has a part-time job, discuss tax-related issues. Consider opening a Roth IRA for him or her.
Age 18+: Damage Control.
College freshmen are deluged with credit card offers. Even if you've introduced them to responsible use of credit, they may still come home maxed out. Emphasize the importance of a budget-and learning from your mistakes.
Now, a very important side note. These timelines are only a suggestion and every child, home, and situation are different. The most critical message you should take from this blog post is the time to start teaching your kids about finances is NOW! Your child will never look back and regret learning too much about finances. Our public school system is responsible for teaching our children about reading, writing, and arithmetic's; but as parents and role-models we have to teach them how to be functional, good, and happy members of society.
Brooke
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