We want our children to grow up to be financially literate, and it's up to parents to make this happen -- kids just aren't being taught in school. Only 16 states require students to be tested on economics, and only four states require high school graduates to complete a one semester course in personal finance.
Last week I challenged you to Resolve to Teach Your Kids About Money. In that blog I began with an introduction to financial education for the youngest age groups, and promised that I would be here to help you along the way. Now I'm going to address the next age group -- preteens and teens.
It's time to move up to the advanced version of my S.O.S system, which is for the younger kids. I devised The Four-Jar Budget System when I first began working with kids and families, and it quickly caught on with parents and financial counselors across the country -- it works! Routines -- brushing their teeth, and budgeting their allowance -- started when your kids are young, stay with them all their lives.
Allowance is work-for-pay, so you'll set up a series of chores. The allowance is paid once a week, at a specified time -- ritual is important. Make sure you have the correct amount of cash on hand. The money gets divided among the four (labeled) jars:
- Charity : Family members get to pick their won favorite.
- Quick Cash: To be spend any way your kid wants.
- Medium-Term Savings: For anything that costs more than a week's worth of Quick Cash.
- Long-Term Savings: Generally college fund.
Charity comes first, and it's 10 percent off the top and divide the balance among the other three jars.
Children are aware that it is good to help others, so you can build on this by explaining why it is important. Talking about different charities, and helping your child decide which one to support, is a wonderful way of learning more about your kid's interests.
Quick Cash can go for whatever your child wants to spend it on, within the limits of your family rules. If your kid isn't allowed to eat candy, then the money can't be used for candy. Otherwise, it's your kid's money -- they earned it, they can spend it.
Make a Medium-Term Savings plan with your child. Have them choose something that will take several weeks to save for. You're teaching deferred gratification, but you're also teaching gratification.
Long-Term Savings gives your teens a sense of investment in their own future. Take your kids to the bank to set up savings account. The money from this jar gets deposited into the account on a regular basis for real-life lessons.
Real World Lessons
Remember that kids learn from watching parents -- be aware of the messages you send and the examples you set. You should have a family budget, and include your teens in regular money meetings. Your meetings should be practical and informative. Be transparent.
- Teach your children how to use a checkbook: writing checks and keeping accurate records. Show them how online banking works, but don't share your password!
- Taxes are a part of life. They're not fun, but they're here to stay. Explain that at their core, the idea of taxes is a great one. Introduce your kids to the concept of taxes.
- Continue to teach the difference between need and want. It seems that our kids learn to say "I need it" before they learn their own name. A Need: Something without which your daily living would be impossible, or very, very difficult. A Want: Something that if you had, you'd be happier momentarily, but if you didn't, you could live without.
- Talk to your older kids about investing and the stock market. It is part of the big picture of money as a life skill -- and it's an empowering skill -- a real adult activity that teenagers can take an interest in.
- Teaching the time value of money is a must -- explaining the real cost of purchases.
- I know you don't want to think about it, but at some point you are going to have to face the subject of teens and cars.
Now you're well on your way to raising your kids to be money savvy. This is a life-long commitment, with real life benefits. The lessons you instill when they're young will give them the tools and understanding to handle all the financial stages of their life.