Girl saving money with family at the back

Teaching your children financial responsibility

| March 24, 2014

Talking to children about finances can be a stressful and somewhat taboo topic, but what they learn early on about spending and saving can stay with them for a lifetime.

The marketers of clothes, toys, games and food that appeal to young people are experts at hitting just the right chord to make it seem their product is something the youthful consumer cannot do without.

So how do we teach our children financial responsibility when it appears the rest of the universe is goading them to spend, spend, spend?

First, you’re going to have to invest time and energy into these lessons, which may be harder than you think. According to a survey by the American Institute of CPAs[1], parents are more likely to have spoken with their kids about the importance of getting good grades, having good manners, and the dangers of smoking, rather than talking about money. The truth, though, is that it’s much easier to develop a good habit than to break a bad one. So, you must resolve to spend a lot of parental time and patience on the project to make it interesting, and take the opportunity to encourage your child’s involvement in the financial decisions that affect them.

Having an allowance and the ability to control their own money is a good way for children to learn about finances. Generally, when a child is around age 10, they can start being responsible for their own savings account. Attaching responsibility to their allowance and savings shows children that the source of money is work. Once children have the money, that’s when the hard work begins.

The trick, now, is to teach your child the balance between spending and saving. There are several ways to do this, but you’ll want to tailor your strategy to your child and find what works best for him or her. Teaching children the balance between spending and savings is a fine line, but it’s important to draw that line in the sand. Here are some suggestions.

  • Offer to match the amount the child saves.
  • Take them with you to open a savings account.
  • Don’t always refuse when they want to withdraw money for a specific purpose.
  • Provide an allowance in denominations that encourage saving. For example, divide a $10 allowance into a $5 bill and five $1 bills, with the encouragement to put one or more dollars into savings before spending the remainder.

Once your child has the savings habit down, it’s time to consider investments. One way to introduce children to this new realm of finances is to open a mutual fund account that will be funded entirely with your child’s money. Of course, you’ll have to be the custodian on the account until your child is 18 or 21 depending upon state laws, so you may want to choose a company with which you already have a relationship and that has a long track record. Remember, mutual funds can represent a variety of investment styles and asset classes that offer both the potential for long term growth and loss of value as there are no guarantees.  Once the statements start coming, I encourage you to sit down with your child and teach them about dividends, capital gains, growing account value, etc.

These tips, if implemented at an early age, should give your children the knowledge and good sense they will need later in life to be financially sound.

Note: First Command is not affiliated with the AICPA.

[1] AICPA Survey: Money Among Lowest Priorities in Talks Between Parents, Kids

Vickie Mauldin retired from the United States Air Force in 2004 after 30 years, serving her two final tours as Command Chief Master Sergeant for United States Air Forces in Europe and Air Force Materiel Command. The mission of First Command Educational Foundation (FCEF) is to educate those who serve. Learn more on Facebook: .

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