Before parents send their children off to college and into the real world, there are many skills they must ensure they have. With so many academic skills taking front and center, Eileen Huntington of Huntington Learning Center says that financial literacy isn’t always top of mind for parents.
“Managing personal finances is a skill that children need in life,” Huntington says. “The great news is that when parents make the effort to educate their children about saving, budgeting, spending, credit and more, they’re also building their children’s practical math skills.” She offers parents these ideas:
- Open a savings account for your child. Take your child to the bank to open his or her first bank account. Show your child how to record deposits, withdrawals, and interest in the register and explain how compound interest works as the account grows. Check with the bank on whether they offer any handouts or workshops for children who are just starting to save and learn about money basics.
- Give an allowance. An allowance is one of the best ways to give children practical examples of what their relationship with money will be like in the future. Perhaps you can establish that different types of chores earn different wages and leave it up to your child how much money he or she wants to earn each week. Then, encourage your child to set aside money for saving, investing, and spending, and take him or her to the bank every month to make a deposit.
- Discuss the difference between saving and investing. Speaking of saving and investing, talk with your child about what each of these means. Explain that saving is setting aside money for safekeeping for the future while investing is trying to grow that money. Talk about the various ways to grow money. Explain how certain investments are riskier, and thus, earn greater returns. You might even share your monthly savings account statements vs. your monthly 401(k) statements to show your child the difference.
- Have your child help you update the family budget. If your family uses a budget—either a spreadsheet or through an app—have your child help you update it each week or month. Alternately, have your child create a budget of his or her own, starting with all income sources (e.g. allowance, birthday money, part-time job income) and listing out any expenses (e.g. clothes, gas money). Share a high-level version of your household budget and how you decide how much to save and invest every month.
Just as children need to think about career paths and their viability before they go to college, they also need to build their financial literacy. “When parents teach their children about budgeting, credit, income, and paying different expenses, they’re also strengthening their ‘money math’ knowledge, including concepts like decimals, percentages, and reasoning,” says Huntington. “These are skills children will put to use and appreciate in adulthood, and the earlier you teach these ideas, the better.”
For more information about Huntington’s math and other subject tutoring programs, call 1-800 CAN LEARN.