This was originally published on Monday, February 20, 2017, in the Pacific Daily News. Click here to subscribe to the PDN.
Giving your children a good foundation and teaching them about financial matters is critical for their personal development. Knowing how to budget, spend and save will establish good money habits for life.
If children develop good financial skills, they will be ready for the financial challenges that adulthood brings. Teaching children the value of money, especially through real life scenarios, will help them understand where money comes from, how it is earned and how to save it. As kids become older, real life situations and examples are the best way to learn.
Ages 13 to 18
This age group has started thinking about college and what they want to be when they grow up. At his age they can start thinking about long term financial goals. It is a good time to learn about the stock market, budgeting, and being responsible for their spending.
- Compound interest. Simple math can teach how compound interest can be used to make money grow. Show them the effects of different interest rates on the same amount of money. Show them how compound interest can work against them when using credit cards.
- Long-term goals. It’s always good to think about the future. Kids at this age have many wants and are tempted to spend as soon as they get money. Help them see that delaying what they can buy today can make a huge difference in what they want later. Using what they have in their savings account, let them calculate how long it will take to save and pay for it.
- If not sooner, when your child reaches the ninth grade, sit down with your child and discuss the cost of college. Being honest about how much you can afford will help them set realistic goals when they start looking at colleges. Help them see there are other ways of funding college. Start looking into scholarships and grants.
- Credit danger. Children often don’t see money exchanged for purchases in this world of invisible money. Invisible money is used when people use credit cards, internet banking and online shopping. It sets a false sense that money is limitless. As soon as your child turns 18, he or she will be inundated with credit offers. If they don’t understand the dangers of credit, some may fall into the credit cycle many get trapped in.
- Help them start their first budget — how much they make versus how much they spend and save. Include money needed for gas, lunch and entertainment. Create a checking account for them. This will help take money managing a step further. If they fall short, don’t bail them out. They need to understand the consequences of their decisions and actions.
- One thing many teenagers have is free time. Maybe they can get a job over the summer. Summer jobs are a great way to learn responsibility. It can teach them about what employers expect and how much one works to earn money.
Maybe they can start a side business to earn extra money from babysitting, cutting lawns, or pet grooming and walking. Another way of making money is clearing out their room and holding a yard sale. By this age, they’ve collected items from prior years that no longer entertain them. Why not turn those items into cash?
- Stock market. Give them a pretend amount of money and have them “invest” in a company that interests them. Evaluate the stock’s performance over a period. Discuss what current events may be driving the prices and causing the values to fluctuate.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at email@example.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.