Financial Parenting

Young children (grades 3 to 5) are ready to develop financial habits and learn behavior norms through everyday activities. As the biggest influence in their lives, you can model and encourage good financial behavior.

Lead by example. Share your values and interactions with money. Trips to the bank or the grocery store can be occasions for learning. Show them how an ATM works. Explain your grocery purchase decisions. When it's time to pay bills, explain late penalties and why it's important to pay bills on time.

Teach through experience. Start with an allowance—perhaps for completing a list of chores. Then:

• Get them thinking about goals. Have conversations about "needs" and "wants," and the idea of paying yourself first: saving for their goals versus paying someone else for stuff today. Let kids make small decisions about their money, and introduce the idea of making plans for spending and saving. Set goals—perhaps by dividing allowance into money for spending now, for short-term goals (a game, a toy, even charity), and for long-term goals (a bike or car).
• Put compounding power in their hands. Amaze kids with the facts about compound interest: What's better: $1,000 every hour for a month, or one penny doubled every day for a month? (The penny, which becomes $5,368,709.12 versus $720,000.00 for the $1,000). Then let them experience compounding by opening a bank savings, investment, or college funding account and watching their money grow over time.

For more information, see Consumer Financial Protection Bureau’s (CFPB): For your child during middle childhood.

Financial parenting your middle-schooler (grades 6 to 8) continues the teaching of good values with more emphasis on experiential learning and navigating the challenges of peer pressure, impulse spending, and needs vs. wants.

Give them a voice. Include tweens in selected family purchases, letting them observe your decision process or even getting their input. Adventurous tweens might plan family events or entire vacations, with guidance.

Make the work-wealth connection. Give your child the opportunity to earn more money while teaching the value of work. On top of an allowance, offer extra money for household chores, or even consider a small job. If your tween shows an entrepreneurial bent, encourage it.

Encourage bigger thinking. With more money, your tween can consider bigger future goals: a car, travel, college or a gap year. Use these conversations to jointly create an action plan.

Introduce the tools. Your tween is now ready to learn about financial tools. Visit your bank or bank website and show your tween the different accounts (saving, checking), electronic and online banking, debit cards. Explain checking accounts and debit cards. Then teach these key concepts:

• Growth. Show the difference between saving and investing accounts, and the basic investing tools (stocks, bonds, mutual funds), and their specific roles.
• Credit. Explain the responsible use of borrowing. Review a credit card offer with your tween, including interest payments, APR, and penalties. It's not too early to discuss credit scores and how they're used.
• Risk. Enlighten your tween on investment risk (the higher the return, generally, the higher the risk). Make him savvy about identity theft and fraud, both online and offline.

For more information, see Federal Deposit Insurance Corporation’s: Tips for the teen years…and beyond.

Financial parenting for teens is closer to on-the-job training. Teens prefer to learn by doing, and want advice and guidance when it's relevant. Think about this stage of financial parenting in terms of saving, deciding, and planning.

Me, myself.

With more money in her pocket, your teen can dust off the concept of paying herself first—saving for a goal. It'll be a challenge, with real-world temptations and teenage expenses. You'll want to help your teen.

Keep it real. Give your teen a longer leash, so he can make both good and not-so-good decisions. Then use a simple budget worksheet to put things in black and white. You'll have hard information for a good set of discussions, whether it turns out your teen is a saver, a spender, or an overspender.

Give credit. Depending on your teen's maturity and responsibility, a co-signed credit card can give your teen an adult financial tool under your supervision and guidance, imparting key lessons about the cost of credit and making timely payments.

It's all timing. Use milestones such as a job, college planning, or even starting a small business as learning opportunities. Explain your teen's pay stub. Guide your teen through the college loan process and discuss the different methods you'll both rely on to fund higher education.

For more information, see Consumer Financial Protection Bureau’s (CFPB): For children during young adulthood.

At this point, you'll shift from caring for dependents to coaching and guiding freshly minted adults who are increasingly open to your advice and shared experience. Key money concepts for young adults are:

• Budgeting. Every young adult should live by a budget. Think in terms of three-month periods and list all expected and possible expenses. Most important, have your child track expenses, then review them together and learn what's working and what isn't, and how to adjust. Encourage good habits, like saving 10% off the top.
• Investing. Start with goals—short-term (several years off) such as buying a car and long-term (farther in the future) such as buying a house. Once your child is excited about reaching a goal, discuss how saving and investing can help him achieve it. Review the various investment tools and reintroduce the power of compound investing over time. You might even discuss IRAs, 401(k)s, and HSAs.
• Insuring. Use a car purchase, apartment rental, or a doctor's appointment as your opening to show how big expenses can be reduced with insurance. Like buying anything else, purchasing insurance doubles as a working lesson in comparison shopping.
• Resourcefulness. Help your young adult become financially savvy. For example, entertaining and recreating on a budget. When to buy used versus new. Where to "find" extra money (grants, scholarships, discounts). Who to trust, and the people and offers to be skeptical of.

For more information, see American Bankers Association’s: Top 10 Tips for College Students.