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Disclaimer: This post is written and sponsored by PSECU, a Pennsylvania-based credit union.
The average young person today thinks they are financially literate, but most are not. This has led to an economy where people start out in debt with student loans and their parents are helping them financially just so they can survive from one paycheck to the next.
In one survey of 15-year-olds, 18 percent didn’t have basic financial skills such as building a budget or knowing how to comparison shop. Seniors in high school only scored 48 percent on a financial literacy exam. There is clearly a need for improvement in teaching kids about money.
Smart financial knowledge starts at home. To help parents teach kids money skills at appropriate ages, PSECU created this cheat sheet.
1. Ages 3 to 5
Financial literacy starts at a young age. As young as three years old, children can learn to count money and start a system of three jars to separate their money into save, spend and give accounts.
There are also books to read and games to play that begin to teach basic counting concepts and details about money management. Even playing store at home and having the child pay for their purchases with pretend money is a fun way to get them to understand they have to spend within a budget.
2. Ages 6 to 8
By the time children are ready to start school, they should be a bit savvier about how money works and why they need to save for the things they want. This is a good time to encourage goal setting and saving for big purchases. Give your child chores they can do to earn their allowance, so they understand the value of hard work.
This is also a good time to begin teaching comparison shopping. That toy that Junior wants might be cheaper on Amazon, so go online with him to check the prices and show him how he can get the toy sooner because it costs less.
3. Ages 9 to 11
By the time your child reaches the age of nine, it’s time to introduce concepts such as counting change. This is also a good time to set up a custodial account and teach your child how to balance a checkbook and review statements to make sure all the charges are accurate.
Allow your child to understand savings by encouraging coupon clipping and giving any savings from items you’d buy anyway to the child for their savings.
4. Ages 12 to 14
This is a great time to encourage entrepreneurship and outside work to earn extra money. Your child should start a savings account for bigger items such as a car or college. Show your child how compound interest works.
This is also a good time to talk about credit and how you have to pay back more than you borrow because of interest. If your child borrows money from you, set up a repayment schedule and charge interest (even if you just put the interest earned into the child’s savings account).
Continue Teaching Sound Financial Habits
As your child continues to mature and grow, introduce new financial concepts, such as budgeting. Stay on top of what your child learns at school so you can supplement with additional topics that will put them ahead of the game when it comes to financial health.