How to make your child financially capable
Most parents understand that they should teach their kids about money. Knowing where to start, on the other hand, is another story.
Fortunately, the Consumer Financial Protection Bureau (CFPB) recently released a guide to help families raise money-smart kids. In it, the CFPB discusses practical ways to build and measure financial capability in children.
Here are a few important takeaways from the guide paired with our own tips for making your child financially capable:
Ages 3 – 5: introduce basic savings and spending concepts
According to the guide, one of the important questions parents should ask during this life stage is, “Has the child developed basic values and attitudes around keeping (saving) and using (consuming) resources?”
When it comes to money, this translates to understanding the difference between saving and spending. A good way to start is with coins. Given a limited number of coins, talk to them about using them all at once versus setting some aside for something they may want later.
Ages 6 – 12: set savings goals
When kids enter this age range, it’s important that they start to grasp the concept of planning. This is when savings goals become important.
For one thing, a conversation about goals encourages them to think about what they want to buy now, as well as in the near and distant future. Buying more expensive things down the road means they can’t spend all their money right now, which is a cornerstone of understanding personal finance.
Ages 13 – 21: boost financial confidence
For teens and young adults, building confidence is critical, both personally and financially. As a parent, you can empower your children by ensuring they follow through with their financial plans. Whether it’s sticking to a budget, achieving their savings goals, or keeping a part-time job, set them up for success through encouragement and guidance.
Additionally, the CFPB says children in this age range should be able to identify trusted sources of financial information. In this age of financial scams, having the knowledge and confidence to say “No” to a dubious offer is a highly valuable skill.