When high schoolers
turn 18 and start planning their dorm room décor is about when parents start
thinking about teaching their kids a thing or two about personal finance.
Because a minor cannot legally sign documents, they cannot open or manage their
own financial accounts; as a result, few parents bother to give any sort of
financial instruction until kids are in their late teens and beginning to
become more independent.
Unfortunately, by this stage of life, financial habits might
already be firmly in place. It’s advisable to get kids not just involved but
invested in their own financial health from a young age. The benefits of early
financial literacy are manifold; financially literate kids:
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more financial independence in college and later in life
which promises a better quality of life during retirement
on student loans, mortgages and other loans throughout life
financial matters.
To improve financial literacy, it’s important that parents
introduce financial tools into a child’s life much earlier than college. Here’s
what all kids should have access to as soon as they grasp the concept of money,
to ensure they grow up financially literate:
<h2 A Savings Account
It is incredibly easy to open a savings account in your
child’s name and then transfer ownership of the account to your kid when the
time is right. A savings account provides the bulk of the financial literacy
benefits; it encourages children to make and save money, to recognize the value
of money without giving them the opportunity to waste it. Plus, having a
savings account before an ATM card or checking account will give kids the
chance to learn how to be patient with accumulating savings and to avoid
wasting their hard-earned cash on foolish things.
There
are dozens of kid-specific savings accounts on offer from big banks, but
before you jump at one of these, you should ensure they come with the following
features:
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discouraging to kids, who don’t fully understand why their money is being taken
away.
to 0 percent. You should look for a savings account with an interest rate of at
least 1 percent, to teach your kid what interest is.
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you, but it is beneficial for kids to walk into a branch and interact with the
tellers. Hands-on experience making transactions will make banking feel more
familiar and less intimidating.
<h2 A Checking Account
Around the time your kid gets their first job, even if that
job is babysitting in the neighborhood, you should give
them a personal checking account. This allows them to reap the rewards of
their hard work. While saving should remain one of their top priorities, having
experience managing their spending is important — especially well before
college, when their newfound freedom can be intoxicating and cause rampant
spending. Having a history of healthy spending will make the physical and
financial independence of college less uninhibited.
Before you hand over the debit card, you should have a long
conversation about what it means to have access to money. You can continue to
control their spending by limiting how much money is in the checking account,
but you should be able to give your kid more agency to experiment with spending
and establish their own healthy habits.
<h2 A Credit Card
A credit card is easily the biggest financial responsibility
in a young person’s life, so it’s important not to start a credit account when
a child is too young to understand its lasting ramifications. Usually, when
teenagers start gaining greater responsibilities and freedom, like the ability
to drive, it is a good idea to slip a credit card into their financial tool
belt. This will get them building credit early, and it will give them an
emergency account to use if they are ever stranded or in dire need of funds.
Typically, parents cosign with their teens; your established
credit should get them a better interest rate and higher limit. However, if
your credit score isn’t ideal, or if you want more control over their credit, obtain
a secured card, which requires a cash deposit that functions as the credit
line. This will grow your teen’s credit history, giving them more opportunities
to develop a high credit score that will benefit them into the future.
Too many parents wait until their kids are college-age to
introduce them to the financial tools they’ll need for the rest of their lives.
The sooner kids become familiar with crucial financial tools, the better, so
before your little ones are heading off to get a degree, you should start
giving them access to savings, checking and credit accounts.
