Imagine two teenagers walking into a big-box store to buy themselves a high-end laptop computer. One has no money saved, but he has a credit card and an idea of the computer he would like based on the ads he saw on TikTok. The other has a solid savings account, a debit card, and an idea of the computer he wants based on the cost comparisons he made while researching his big purchase. Who do you think will leave in the best financial situation?
If you guessed Teen #2, you’d be right. Although no child is exactly the same as another, they all have one thing in common: they need to understand the basics of money in order to thrive in life.
In the United States, 47% of adults say they usually live paycheck to paycheck, according to a 2021 survey by the National Endowment for Financial Education. This means nearly half of American adults are unprepared for an unexpected average expense, such as a car repair or a medical bill.
As soon as the laptop example above becomes the purchase of a vehicle, an education, or a home, the stakes are raised. That’s why it’s important to start teaching your child about personal finance early.
Few parents (less than 15%) discuss managing student loans, preparing for retirement, or applying for a car or home loan with their children. according to a recent survey.
The good news is that you don’t have to be perfect. You just need to help guide your child in the general direction of financial literacy. Let the kids know that you’re always ready to talk about money and answer their questions. What if you don’t know the answer? You can always do research together.
Here is a collection of topics to explore with your child:
Encourage your child to be creative in earning money and help them understand their own earning potential.
- Have fun – Selling lemonade, walking a neighbor’s dog, or recycling cans and bottles are easy ways for kids to earn money and have fun.
- Talk about it – Put your own work in terms they can understand, like how many hours you need to get to the office to afford a train ride together at Roaring Camp.
- Show Them — Establish a weekly allowance in exchange for completing household chores. Once a week, give them the amount in cash so they can see the fruits of their labor.
Children like to do things that make them happy, and there are many ways to add happiness to savings.
- Have Fun – To create a joyful experience around depositing money into a piggy bank or Children’s savings account like those offered by Bay Federal Credit Unionuse lots of praise and cute stickers for positive reinforcement.
- Talk it out — Ask the kids what they want and explain how saving can help them reach their goals. Whether it’s for Legos or lollipops, kids can be highly motivated savers if it’s for something they really want.
- Show Them — Use a clear piggy bank or star chart so your child can see their progress.
Spending can be confusing for kids, especially when most of their parents’ purchases can be done electronically. Use money to figure out how far a dollar will go.
- Have fun – If your tween wants to go for a walk on the beach in Santa Cruz with friends, give them some pocket money in cash. This will allow them to make financial decisions, and they will need to budget for it to last.
- Talk about it – What exactly do you do when you tap your phone or card to pay? For children, it may seem as simple as waving a magic wand to get what you want. Print a credit card statement and review your recent purchases together.
- Show Them – Live on a cash budget for a month and let them count the money left over each week. Do something fun together if there’s any left.
Lessons on borrowing money can leave a sour taste in your toddler’s mouth, and that can be a good thing.
- Have fun – If your teen is considering taking out loans for college, ask them to pick two careers they think they’ll enjoy after school. Ask them to do the math and compare how long it would take them to break even.
- Talk it out — If your child wants to lend money to a friend, let them know that they may never get it back. Then let them be and see what happens.
- Show them – If your child wants an advance on their allowance, agree but charge them a small fee from their next allowance. Before you know it, they won’t be visiting dad’s bank as often.
As mentioned above, explaining how to save for retirement isn’t at the top of many parenting to-do lists, but the topic is important for lifelong financial stability.
- Have fun – Even school-aged kids can tell you what they like – Anna and Elsa, anyone? Let them buy a piece of Disney for their birthday present and check it once a week to see what it’s doing.
- Speak Up – Parents don’t need to have all the answers, and now is the time to consult with a trained professional. Teach your child what the word is fiduciary means and set up an appointment for them to sit down with a financial adviser.
Federal Credit Union of the Bay started when local school teachers pooled their money to create a credit union. This investment has grown through an incredible journey of involvement (evolution) in the region’s largest local financial institution, with over $1.5 billion in assets.
Bay Federal provides full-service financial products and solutions to Santa Cruz, Monterey and San Benito counties. Whether a community member is looking to buy a home, buy a car, save money, or access the latest banking technology, our friendly, local employees are here to help.