By Curtis Loftis, State Treasurer of South Carolina
Helping the children of my state grow up to be financially literate adults is a particular passion project of mine. Over the years, experts in teaching financial literacy have often shared with me that the earlier you can begin helping a child understand money habits, the better. They’ve stressed that there’s no need to worry that money talk will be too hard for a toddler to grasp. In fact, research shows that children as young as 3 can understand value and exchange, and many habits that will help children keep a smart attitude toward money in adulthood are formed by age seven.
Of course, you shouldn’t give up if your child is older. Whether 4 or 24, your child will benefit from conversations about finance. And one of the most important financial lessons you can teach a child of any age is the understanding and appreciation of saving for the future.
Saving for the young child
- One of the earliest lessons your child can learn to become a save-savvy adult is delayed gratification. Teach young children to wait to enjoy a sweet treat or to delay screen time until after dinner has been eaten and cleaned up. Another easy lesson is having a child tidy up one activity before moving to another. A child who learns to delay gratification will find it easier to choose saving over making impulse purchases later in life.
- A child can also learn to “earn to save.” Stickers or stars that are “earned” can be “saved” for something the child wants. For example, your child can earn a sticker for cleaning up, being helpful, or going to bed when asked. The saved stickers add up, and they can redeem them for a small toy.
- When your child plays pretend chef or doctor, talk to him or her about getting paid for that job. Pay pretend money and explain how the “doctor” will spend the earnings. Divide the money between “needs” – housing, food, etc. – and “wants” – a book or a game. Don’t forget to put savings in the “needs” category and celebrate that the “doctor” now has a budget.
Saving with real money
- When children are old enough to complete chores, give them many opportunities to earn money. Remember, they have to have it to save it. When they earn money or receive it as a gift, have them decorate their jars or containers to keep it in. It gives ownership and allows them to separate their money instead of putting it all in one place. Label one jar “$ for Paying OTHERS.” Label another jar “$ for Paying ME.” Money used to make a short-term purchase, such as a toy, goes into the “$ for Paying OTHERS” jar. Explain to your child that they are using the money to pay others in exchange for the toy. Money placed in the “$ for Paying ME” jar is saved for the child’s important, future goals – even if those goals aren’t yet defined – such as purchasing an expensive item or donating to an animal charity.
- Show your child your savings goals. Are you saving for a family trip? Let your child join in the fun with his or her own contributions from the “$ for Paying ME” jar. Use a chart to show the family’s progress toward the goal.
- Borrow from your child and pay interest on what you borrow. It’s an easy way to introduce the concept and keep your child interested in learning about finance.
- Play traditional games like Monopoly or The Game of Life or choose from the many online games that will help your child learn about saving.
Older Kids and Saving
- A fair and generous allowance system helps teens learn to budget money and prevents them from constantly asking for money for outings with friends or new clothes. You can lend them more money if they need it, but you will also need to charge a little interest when you do.
- Teach older kids that they will have to pay if a parent has to complete their assigned chores. When they become adults, they will need to cut their grass or pay someone else to do it. As a teen, they need to pay if they are not willing to complete the jobs they have at home.
- Be sure to model good financial behavior and explain how you create your own budget. Include information about taxes, insurance, and saving for retirement.
Saving for a Bright Future
As soon as your child knows what college is, it’s time to explain your 529 college savings plan. Tell your child that the goal is to give him or her the ability to start an exciting career without overwhelming debt. Show your child your 529 savings progress and explain the value of compounding interest. Remember, having children contribute to higher education will give them a sense of pride and ownership when the time comes for them to work toward graduation.
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