BUILDING HEALTHY FAMILY FINANCES: Establishing a Solid Foundation

This is our fourth article in a 5-part series on Building Healthy Family Finances.

One of the greatest gifts we can give our children is an ability to confidently provide for themselves when they are ready to leave the comfort of home and begin their lives as independent adults.  If you have young children, you may think that day is way ahead in the distant future.  Yet, if you speak to just about any parent of a twenty-something, they’ll tell you that time goes by in a blink.

Beyond the basics of a solid general education, young adults need to know about money management.  While it’s an improvement that 21 states now require high school students to take a course in personal finance, it’s our responsibility as parents to take their financial education further at home.  Regardless of their age, and whether teenagers admit it or not, kids look to their parents for examples on which to model their behavior.  By taking time to include them in discussions about money while putting age-appropriate lessons into action throughout their childhood and adolescence, you can empower your kids with the tools they need for a lifetime of financial success.

Where Should You Begin?

Young Children

You might be surprised at how young children are when they start asking for a special toy or game, but it is estimated that advertisers spend more than $12 billion per year to reach the youth market and that children view more than 40,000 commercials each year.  Good habits developed from a young age will be essential in raising financially literate adults who can make objective decisions when facing the multitude of choices available for spending money.  When children are old enough to want to purchase an item, it’s a perfect opportunity to begin connecting the effort and responsibility that goes along with it. 

You may place a dollar value on age-appropriate chores or provide kids with a flat allowance based on fulfilling obligations on a daily chart.  For example, if a child makes their bed, brushes their teeth, and puts away their toys, they can get a star for the day.  A week of stars gets them one step closer to earning their financial goal. You can predetermine a threshold your child is working toward to earn the toy.  As children get older, the responsibilities and rewards can increase.  The important thing is that they will learn the value of earning, saving, and spending. 

Entering School

Once children are in elementary school, it’s an ideal time to help them open a savings account and teach them how to manage it.  A step up from a star chart on a refrigerator and building on habits of earning money around the house, you will be teaching them the benefit of regularly saving money.  As a child goes through the process of making weekly deposits, no matter how small, they will watch as their balance accumulates into a larger amount.  If they choose to spend money on an item, they will see exactly how much it impacts their savings. This is also a great age to begin involving kids in budgeting.  A trip to the grocery store when they help with creating a shopping list within a specific dollar amount can be an eye-opening experience.

The Teen Years

As your children are getting older, more money conversations can be had around the financial impact of their decisions.  Some teenagers will get their driver’s license and begin working part-time jobs.  Post high school graduation plans may be on the horizon and the possibility of college or entering the workforce are becoming clearer.  While they are bound to make some mistakes, as we all do, speaking with them about more in-depth financial topics may help them avoid problems later.

Some topics to speak about with your teen:

  • Understanding taxes and how they impact salary.  Your teen’s first paycheck may come with a shock as their take-home amount is less than what they may have expected to receive.
  • Arm your teenager with the facts about the costs of their college options.  Will you, as a parent, be funding their full tuition?  How much they will need to contribute?  Their “dream” school may come with a high tuition and more affordable selections could be excellent alternatives worth considering.  Help them to understand the significance of carrying student loan debt past graduation.
  • Savings strategies.  Time is on their side to reap the benefits of consistently saving, compound interest and stock market investments.  This can give them a head start by understanding how their money can grow.
  • Budgeting.  Speak with your teen about the expenses incurred in running your household and help them to understand the basics of setting up a budget.  They may be shocked to learn that things like electric and insurance cost as much as they do.
  • Managing a bank account. Learn to balance a checkbook.
  • Responsibly managing credit.  Understanding the differences between a debit card and a credit card and explaining how credit is not free money.

Speaking with your children about money is not a one-time conversation.  An ongoing dialogue, started early, can help your kids to view money in a healthy way and have a solid foundation of knowledge to continue to develop as they age into young adulthood.  If you would like more information about age-appropriate financial discussions, please contact us.