8 Money-Smart Tips for Your Child
Guest Blog Post by BusyKid
While the particulars of family finance practices may vary, one thing remains the same: kids are in desperate need of knowing how to manage money at a much younger age than ever before.
Education and hands-on experience are critical when it comes to being a financially successful adult. Sure, your child could be one of the lucky few getting it right more than getting it wrong, but why risk it?
April is National Financial Literacy Month, so BusyKid is proud to partner with the American Leadership Academy to help stress the importance of earning, saving, sharing, spending and investing money wisely. Without some knowledge of finance, children today are flying blind into a hurricane-sized storm full of huge debt, bad loans, bankruptcy, no savings or retirement.
To help your child, here are the basics they (and maybe you) should understand to better deal with the reality we live in. Sure, there could be mistakes made, no one is perfect. You can teach your child to ride a bike but he/she could still crash, right? At least you can sleep better at night knowing they're learning something that they can use to help them from moving back at the age of 25 or 30.
1. Chores = Job
Parents, introduce kids to chores as soon as possible and treat them as if it’s your child’s job. By changing the mindset around chores, your kids can actually develop a good work ethic that can carry over to a real job someday.
2. How to use modern dollars & cents
Yes, dollars and cents are still used, but not as much as you think. It’s estimated that less than 10% of the currency in the world is actually paper or coins. This means your child needs to know how to manage invisible money, including paying bills and keeping track of spending on credit/debit cards. Ensuring accounts don’t hit zero is critical.
3. How to save money
Seems simple but 39% of Americans admit to having zero in a savings account. 57% say they have less than $,1000 in a savings account. Teach your child to take a portion of any money they get (birthday, holiday, babysitting, mowing lawns, etc.) and place it in a savings account. As a rule, 50% should go to savings, 40% to spend and 10% to share/donate.
4. How to share money
Contributing to non-profits not only makes you feel good but helps others in need. It could also provide a tax benefit when your child begins filing. Teach them that 10% of what they make should be set aside to “share” with others.
5. Why investing money is important
If your child ever wants to retire, he/she will need to invest money somewhere along the way. Lucky for them, there are plenty of resources available to teach them how including some fantasy investing games which would allow them the chance to invest pretend money. Practice makes perfect and BusyKid provides a place to buy real shares of stock for as little as $10.
6. So what exactly is compound interest?
Compound interest is when a bank pays interest on both the principal (the original amount of money) and the interest an account has already earned. As an example, if you put $1,000 in the bank with compound interest of 10%, in 20 years the $1,000 would be more than $7,000. Without compound interest, it would be $3,000. Let your money make money!
7. Knowing the ins and outs of a credit card
This is not free money! Have one card for emergencies or travel, but make sure the annual percentage rate is low and it is paid off each month. Your kids will be flooded with credit card offers as soon as they are old enough and really approached when they hit college.
8. Being smart with student loans
Seems like a great idea at the time and everyone has a plan to pay them back, but currently, the U.S. student loan debt is $1.45 trillion (average of $37,000 per student) and nearly 7 million loans are in default. Have your student follow this simple rule - don’t borrow more than they would earn in their first year out of school. In other words, if your child is going to make $24,000 as a first-year teacher, don’t take $50,000 in loans.
If you are interested in teaching your kids more about financial literacy, check out the BusyKid app, the first and only chore and allowance platform where kids can earn, save, share, spend, and invest their allowance. Help your kids learn smart financial habits now so they can make sound financial decisions in the future!
What lessons do you think are the most important to teach your child about being responsible with money? Tell us in the comments below.