The truth about Santa. Even the admission that you have no clue what purpose learning algebra serves. These are all sweaty-palmed “talks” that all parents inevitably have with their kids – sobs, eye-rolls and a lot of “eeeww, gross!” protestations notwithstanding. But inevitably, we all end up taking a deep breath, succumbing to some hard truths on some of life’s stickiest subjects.
Are you surprised to know the same holds true about the “money” talk? Yep, lots of parents try to avoid the subject like the plague.
And that’s no good. Between the mortgage crisis, mounting consumer debt and the overarching failure to make saving for retirement a priority, our epic financial foibles have proven that now more than ever, teaching financial literacy to kids is crucial – lest the little ones repeat the mistakes of their elders.
And that’s where a merry band of financial advisors come in. Back in 2010, on the heels of ‘08’s massive meltdown, the government created an Advisory Council on Financial Capability – a group tasked with helping Americans make wise decisions about money. No small feat, indeed. A subcommittee was also created to concentrate on figuring out how to teach kids the basic concepts of money as early as possible. And where should the teaching begin? No surprise, it’s right at home.
So what’s the best way to empower the kids in your life? One of the committee’s first steps was to create “Money Milestones: 20 things kids need to know to live financially smart lives,” a simplified work-in-progress guideline to kids and money. Culled from thousands of pages of research from tons of independent sources, they broke the milestones down by age group. Here’s what they think kids should know:
- Age 3-5:
- You need money to buy things
- You earn money by working
- You may have to wait before you can buy what you want
- There’s a difference between what you want and what you need
- Age 6-10
- You must make choices about how to spend your money
- You should shop around for the best deal
- It’s dangerous and costly to share too much information online
- Put your money in a bank account to protect it and earn interes
- Age 11-13
- It’s smart to save 10% of what you earn
- Entering credit card or Social Security numbers online puts you at risk of identity theft
- The earlier you save, the more you’ll have in the long run
- A credit card is a loan and you’ll owe more than you spent if you don’t pay your bill in full each month.
- Age 14-18
- College is expensive and you should choose a school and student loans based in part on your career expectations
- You should avoid using credit cards for things you cannot afford in cash
- You pay taxes on your income and should budget for take-home pay, not gross pay
- A great place to save and invest is a Roth IRA
- You should never be without health insurance
- You should use a credit card only if you can pay off the balance every month
- You should always diversify your investments and pay attention to the costs associated with various investment products
The big take away from this is that teaching kids about money doesn’t have to be dauntingly complicated. Just teaching them the fundamental blocks of knowledge (at the appropriate age) is enough to get kids comfortable with the notion of money – and to make sure that they grow up into fiscally responsible adults. And that’s a whole lot easier than explaining to them where babies come from.
What do you think Saver? How soon is too soon when it comes to kids and money? Is there even such a thing?
Source-We, the Savers on Capital One.