Too often, adults shy away from conversations about money in the family. In the first two parts of our educational series, The Money Talk, we discussed how we can help our aging parents with finances, providing guidance on learning if and when parents may need our help and specifically what to do when the need arises. We also acknowledged the sources of difficulties many parents face when having money conversations with their children. You can view the first two articles in The Money Talk series by visiting our website’s Knowledge Center.
Financial literacy, especially among children and youth in our society today, is a great need with which your team at JFS can help. As growing into adulthood heightens children’s need for taking on greater personal responsibility, it is up to the parents, as teachers and role models, to set the tone around earning, saving, spending, and donating. Teaching children a solid financial foundation relies on age-appropriate guidance for helping them develop their future relationship with money.
According to www.moneyasyougrow.org, kids of pre-school and kindergarten age begin to understand that we need money to buy things and we earn money by working. They see adults working all the time and begin to understand that we may need to wait before we can buy things. Parents and family culture around money is reflected as we help children understand the difference between things we need and things we want. Parents can demonstrate that we provide for needs first. Prioritizing wants vs. saving for our future or donating to others in need should be discussed openly with children, early and often. Our “money culture” is reflected in these discussions and will form the foundation for their values around money.
Once children show an interest in money at around age six, providing an allowance is a great tool for associating effort with earning and personal responsibility. Children should be taught to help out, especially with elements of their own personal care such as managing their closets, drawers, toys, and personal belongings. They can also help with assigned chores benefiting the larger family. Earning a reasonable allowance (perhaps just a few dollars a week or so, more for older kids) for doing work allows for pride of ownership and opportunities to learn about prioritizing spending, saving, and donating.
Children who earn allowance should have freedom to make their own choices with their money. Helping them understand the limits to their funds, children aged six to ten may begin learning priority setting and how to compare prices to make the most of their dollars. They also understand safekeeping and can appreciate piggy banks and putting money in a savings account to protect it and possibly earn interest.
While still in elementary school, kids will learn that money takes on many forms: cash, credit cards, debit cards, etc. They can begin to understand that a credit card is like taking a loan, and parents need to emphasize the importance of paying them off every month to avoid stiff charges. They can understand the value of saving a portion of earnings for future goals and major expenditures (like buying a bicycle, car, or ski trip). Parents can help set goals and help make plans for accumulating enough money over time to meet those goals.
Teens in junior high and high school often seek jobs. They learn, from their first paycheck, that money is taken out for taxes. They can appreciate this is how we contribute to our community and society to fund our cities, schools, roads, and government programs. They also begin to think about bigger financial issues like needing a car and going to college or vocational school. Parents should be open to the idea of kids helping with those costs. Many parents provide a used family vehicle, especially if the student is responsible for transportation to a job and/or school-related activities. Perhaps they can pay for their own gas and insurance. Saving for “spending money” and incidentals while in high school and college is also an admirable goal.
Teens with a good sense of a dollar’s value — and the limitations of family finances — can often understand the magnitude and importance of the college selection decision. Saving for college is a topic for another article, but as much as parents may consider college funding to be their responsibility, so too then is the choice of how much to spend on college. Discussion around career paths and the child’s future should start as soon as junior high.
Consider the value of the choices for each field of study vs. the cost of the college. Many fields of study require postgraduate education in order to be employable in that field, and certain fields of study pay more than others. Teens may need significant help from parents and guidance counselors when matching themselves to career paths. For those with more clarity, their choices may be narrower. When children need to further explore themselves before selecting a career path, parents should be careful to avoid suggesting the most expensive schools.
Funding higher education can be a shared discussion with your teenager, and kids should know there are limits to how much the family can pay. Understanding how student loans work is an essential part of this conversation. Children can help by earning academic, athletic and/or community scholarships, saving while earning in high school, working while in college, living at home, and considering state universities or community colleges.
During this period, children begin to find themselves and define themselves as adults. Their involvement in painting their own picture of their future lives, including its key financial aspects, translates to greater personal responsibility for and appreciation of their achievement. It also lays the foundation for a strong financial future.
1 JA – Our City, 2019; Junior Achievement of Southeastern Pennsylvania
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As Managing Principal and Senior Lead Advisor, Thomas Alvaré, CPA/PFS works with our team of financial advisors to help clients develop, implement, and monitor tailored financial solutions. Tom’s ability to understand his clients’ planning needs, evaluate potential options, and clearly explain alternative solutions helps his clients work toward achieving their financial goals. If you have questions regarding this or other financial planning topics, contact Tom directly at email@example.com.