Planting the Seeds

Have you ever wondered if your efforts to practice healthy money habits are effective in teaching your children about money?

As I happily learned, these lessons do stick. According to the FDIC, “Parents are the primary influence on a child’s future financial well-being…” Our children learn these lessons in the least expected ways.  My daughter had a milestone birthday recently and received a gift, and I suggested she open a savings account for these funds. “Will it pay interest?” she asked. I certainly didn’t expect this to be her first question; and she explained that she remembered when she was in elementary school, I paid her weekly interest on her savings. She said, “I didn’t know what it was at the time, I just knew the more money I had, the more you gave me.”

When laying the foundation for later learning, experiences are more impactful than conversations.

So, what kinds of experiences can you provide your child through the ages? Here are some suggestions:

1. In early elementary school, give them a regular allowance and let them make independent financial decisions with their money. You can start with 50 cents a day at the age of five or six.
   • Use this opportunity to teach your child how to identify and count coins. For example, if they receive five dimes daily, they can use this to skip count by tens. Then introduce nickels to practice skip counting by fives, etc.
   • Allow them independence in their financial decisions—saving, spending, or giving. At this young age, learning the natural consequences of their decisions is a safe way to build their experience and learn from mistakes.
2. Introduce interest. Once they’re comfortable with the predictability of a regular allowance, support the idea of savings by giving them a meaningful amount of interest at established intervals. At this young age, a bank rate of 0.01% on $3 won’t make an impact. Consider giving them 5% or 10% weekly or monthly so they can factor meaningful interest into their savings goals. Also, if your child spends their money and asks for more, you can use this opportunity to charge interest on a loan and teach them the consequences of debt.
3. Open a checking account for them when they reach middle school and begin meeting friends at the mall or at restaurants. Most banks offer joint checking accounts for children and parents that children can access through debit cards and review with an app. They can see their spending history easily which, over time, will make them less impulsive. It also gives them an avenue to save and eliminates the need to carry cash when they are out. If their balance continues to grow, open a savings account to separate large savings from regular spending cash.

These experiences, combined with regular conversations, will help establish a sound financial foundation early. Some of these ideas for teaching your children about money and others can be found in The First National Bank of Dad by David Owen.