Family (Money) Matters: Teaching Children Financial Literacy, Part 2

Last month, we highlighted the importance of teaching children financial literacy, specifically ages 3 to 10. This month let’s focus on 11 to 18-year-olds.

Ages 11-13

You should save at least a dime for every dollar you earn. Encourage the habit of saving 10% of all money your child receives. Have them set goals for things they’d like to save up for. Help them comprehend how financial matters have both a short-term and long-term components.

Using a credit card is like a loan. Most likely, they watch you use cards all the time and might have questions about it. They need to understand this is actually a financial transaction taking place and money is going out. A cashless society only appears cashless at the time of the transaction but emphasize how a swipe of a card is still an exchange of money.

Ages 14-18

You should avoid using credit cards if you can’t pay the balance off each month. They need to understand if you don’t pay the bill in full every month, interest can work against you, and you’ll end up paying more for the item than it actually costs. At this age, they are a lot closer to having their own credit card.

You must pay taxes on your income. This is an important concept to understand well before they graduate from college and get their first full-time job. Explain what taxes pay for in your community.

The importance of having an emergency fund. Provide examples of why it is important to always keep some cash in savings. You can cite examples of emergencies you’ve experienced — appliances breaking, losing a job, medical issues, and how having a savings cushion helped you get through these times. Or alternatively, talk about how you regretted not having an emergency fund when you needed it.

Basic investing concepts. If they are earning income, you may consider setting up a Roth individual retirement account for them and talking about basic investment concepts so they can get some hands-on experience in watching their money grow. Perhaps, even show them one of several stockbroker-related movies or television shows.

In the end, avoiding the importance of teaching your children financial literacy could be detrimental to both you and them. Financial independence is one of the hallmarks of adulthood, and its vitally important to help children reach that milestone.

Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice.

Comment On This Article