Lisa Minnis never doubted the financial responsibility of her 16-year-old daughter, Isabel, but some order was needed, along with a dash of education.
Isabel made decent money from babysitting, although she kept the cash in random locations around her room. Then she got her first real job at a swim and tennis club, teaching 5-year-olds how to swim, and it came with the new mystery of a paycheck that required withholding.
“We went to the bank and got her accounts for savings and checking,’’ Minnis said. “They explained how it could work for her, what would be best. Basically, she’s saving all of her swim-lesson money and using the babysitting money for spending.
“I think she had pretty good money discipline anyway, but now she has structure and a plan. I think she is developing some really good habits with her money.’’
Teaching kids how to budget and save isn’t really an option, according to financial experts. It’s essential.
“Financial literacy should be part of a political agenda and in my view, we need a national initiative about it,’’ said George Washington University professor Annamaria Lusardi.“We have to make sure the next generation is well-equipped and parents must set an example. They must teach kids about money.
Lusardi is one of the nation’s foremost authorities on debt management and prudent financial practices. She thinks too many parents are counting on schools, employers or even peers to teach personal finance education and that is not going well.
“If you leave it up to other parts of society, such as the employer or private sector, it’s going to be a very unequal process,” Lusardi said. “Learning through mistakes is costly and inefficient. Children should be taught the right way at a young age. They will become financially responsible adults and avoid so many problems.’’
According to research from the Consumer Financial Protection Bureau, children are “developmentally capable’’ of saving at age 5. Allowances are fine, but the real benefit came with parental guidance on saving, budgeting and spending. It creates habits that allow them to effectively manage their finances as adults.
And what’s the best road map for parents who are eager to guide their child’s financial development?
If nothing else, there is one very valuable tool that provides a wonderful financial education for just about any age. Create three jars — labeled “saving,’’ “spending’’ and “sharing.’’
When a child receives money for a birthday gift or earns money for chores, the money can be divided equally among the jars. The spending money can go for smaller items. The sharing money is for charity. The saving money should be accumulated to purchase more expensive items. As with any meaningful exercise, a child learns how to save money by making good choices.
“My daughter will be going to college in a few years and I told her she’s going to want to have some money,’’ Minnis said. “I reminded her that it’s not all coming from the National Bank of Mom. We all need to learn how to plan and save. Learn it young and that’s an advantage.’’
Kieffer, C., Lusardi, A., Mottola, G., Walsh, G., (2016), National Financial Capability Study, FINRA Education Foundation. Retrieved from http://www.usfinancialcapability.org/downloads/NFCS_2015_Report_Natl_Findings.pdf
Shin, L., (2013, 15 October), The 5 Most Important Money Lessons To Teach Your Kids, Forbes Magazine. Retrieved from http://www.forbes.com/sites/laurashin/2013/10/15/the-5-most-important-money-lessons-to-teach-your-kids/#5d3c0bca498c
Renzulli, K., (2014, 1 July), 8 Ways To Teach Your Kids To Be Financially Independent, Time Magazine. Retrieved from http://time.com/money/2946458/teach-kids-to-be-finacially-independent/
Schlachtmeyer, L., (2015, 22 May), Here’s Why Childhood Is An Important Time To Learn About Money, Consumer Financial Protectin Bureau. Retrieved from http://www.consumerfinance.gov/about-us/blog/heres-why-childhood-is-an-important-time-to-learn-about-money/