Financial competence is essential for all adults because it allows one to make proper decisions when it comes to money. A financial advisor can recommend setting smart financial goals to ensure you stay within your means or grow your wealth. However, instilling habits from an early age can ensure the highest accuracy when dealing with finances. Here are ways you can set smart financial goals for your children at different ages of their growth.
Ages 6 – 10, explaining the basics of money and transactions
By the age of six, children can begin to grasp the cause and consequence of money transactions. As a result, they begin to realize that their parents work for a living. They can also realize that things cost money and that not all purchases are made with cash. They begin to recognize there are several kinds of money, even if they may not completely comprehend how they function. At this age, children begin to comprehend that different products have varying prices. While they can not fully comprehend the pricing of some things, they are aware that some are more expensive than others.
Children at this age can start to notice that individuals have various sized houses and automobiles. You may have to answer some of those questions when you start teaching your children about money. It is an excellent time to start educating your kids that money is spent on things and services. Your children have seen you buy things, but they may not have seen you buy services. This also reinforces the notion of labor and being compensated for one’s efforts. If your children do not already know what you do, this is an excellent moment to explain it to them. You can start instilling a sense of earning money by boosting your children’s allowance as they become older and can accomplish more difficult chores. It may be best to also increase the number of chores they must do to earn their allowance.
Goal: Look for ways to save and the benefits
Since children are beginning to notice different patterns associated with money and purchases, you can involve your kids in shopping trips and set goals like finding the best deal at the grocery or department store. Many retailers have flyers or coupons that can be used for extra savings. You can show these different ways of saving to your kids as they help you shop. Turning savings into a game for your children can be a way of reinforcing good habits early in their development.
Ages 11 – 13, instill the importance of savings
When children reach the age of 11, they begin to acquire the ability to reason and understand the consequence of their actions. They are also transitioning from emotional to cognitive decision-making. At this age, children desire to be independent of you as well. This is an excellent moment to start broadening their financial knowledge. When teaching children about money at this age, you should start thinking about credit, debt, and budgeting. You can eventually begin to explain apps like PayPal, Venmo, and other e-commerce payment apps. However, before allowing your children to use these applications, make sure they understand the risks. When discussing payment applications and electronic payments with your children, make sure they understand identity theft.
When talking about credit with your children, highlight that if they cannot afford to pay for an item in cash, they cannot afford it and should not buy it. When introducing credit cards to your children, make sure they understand that they must be paid off each month. Now is the moment to shape their attitudes on credit cards. If you teach kids that credit cards must be paid in full each month, they will not use them to buy stuff they cannot afford.
At the mention of credit cards you can start explaining how credit works and credit ratings. You should start by explaining how debit cards function. You can also create a bill that your child is required to pay to you. You can opt to deposit that money in a savings account for your children so that they do not lose it. However, you are not required to share such information with them. The goal is to educate your children the importance of having enough money to pay their bills. It can teach children financial responsibility.
Goal: Save for a purchase
Encourage your children to save for a desired purchase, such as a new scooter or a laptop. Set aside at least a cent for every dollar earned by your child to help them save for the purchase. Writing out your savings goal may be both helpful and motivating. For example, record each week’s balance on the calendar and predict when your child will attain the target. Preteens can progressively gain greater financial responsibilities. For example, at the age of 11, you may allow your child to purchase school supplies as well as pet food and toys. By the age of 13, your child could be able to purchase some back-to-school clothing and other necessities for themselves. This can reiterate that not all earnings should be spent on goods that are wanted but should be saved for needs as well.
Ages 14 – 18, translating work hours to money
At this age your children may begin working and earring a part-time income while still in school. Your child at this point may not understand taxes and how they affect earnings at this age. Taxes must be included while teaching children about money. They are critical since we are all compelled by law to pay taxes on all incomes, and the sooner your children realize this, the better off they will be. Nothing is worse than receiving your first paycheck and realizing how tiny it is. For example, your child may be expecting to get paid $13.50 per hour for 20 hours of work, which is $270. However, this is not the actual amount they would receive because taxes will be deducted.
Goal: Earn money for their purchases
This is an excellent age to urge your child to have a part-time or summer job, which allows them to build a link between hours worked and spending. Allow your child to pick a monetary goal and then translate it into hours worked. For example, assist in calculating how many hours your child will need to work in order to purchase that jacket or cell phone.
Goal: Get started with a checking Account
When your child starts their first employment, it is a good idea to open a checking account. Demonstrate how to utilize internet banking and account-monitoring applications. Comparing their digital records to their monthly statements is another crucial habit to instill in their children at a young age. Overall, maintaining a checking account will help them grasp their record-keeping obligations as well as the implications of overdrawn balances.
Starting young in your child’s development to teach them about money can further their financial future by making them financially competent when it comes to purchases, savings, and investments. Setting financial goals for yourself can extend to your children. Doing so can be a learning experience that can extend past their teens and into their adulthood as finances will follow them well past any age.