Kids and Money: An Age Guideline
Financial education for teens and young adults is getting a lot of attention. Yet it isn't clear that any amount of formal schooling in what I like to call the Fourth R (Reality) can make a meaningful impact. When it comes to money, kids seem to be learning less, not more.
In a series of financial literacy tests given to young people over the last 12 years, JumpStart Coalition reports that the average score consistently has been in the failing range. Incredibly, the lowest scores have come in the most recent test period; this at a time when individuals increasingly need to understand things like self-directed pension plans and complex mortgage options.
The federal government is doing what it can to reverse this knowledge deficit; the Obama administration has drafted a national strategy for financial literacy and launched a nuts and bolts money website. But the hard work must still be done at home, Bank of Dad style.
It's never too early or too late to start sharing money lessons with your kids. Moms, especially, seem to be taking this to heart. Nine in 10 talk about money with their family, according to research from Women & Co., which offers these age specific guidelines to further the discussion:
Ages 4-6: Children this age can associate the simple collecting and storing of coins with the abstract concept of long-term saving. They should have a piggy bank and begin to grasp the relative value of coins.
Ages 7-10: Start introducing financial rewards for specific tasks, like raking leaves and paying by the bagful. This should be in addition to allowance. Your kids will begin to equate money with effort and be more likely to spend wisely.
Ages 10-13: Kids around age 10 can begin to understand the concept of credit and lending. When your children want something that's beyond their means consider lending them money and creating a written IOU spelling out how they will repay.
Ages 14-18: The teen years are when kids really want to flex their financial muscles. They should get a part-time job. You might also give your children a lump sum allowance that must carry them for three months or longer. Allow them to allocate the funds as they see fit. But be clear that there will be no more money coming from the Bank of Dad. This is a great way to encourage living within a budget.
College students. This is the time to start talking about investing and about managing debt. Credit card offers will flow their direction (even though new laws make it tougher for card companies to solicit minors). It's also important at this stage to talk about an emergency fund -- to expect and be ready for the unexpected.
If you have a question about kids and money, I'll get the answer. Email me at dankadlec@dankadlec.com.
Daniel J. Kadlec is an author and journalist whose work appears regularly in Time and Money magazines. He is the former editor of Time’s Generations section, which was written and edited for boomers. Kadlec came to Time from USA Today, where he was the creator and author of the daily column Street Talk, which anchored the newspaper's business coverage. He has co-written three books, including, most recently, With Purpose: Going from Success to Significance in Work and Life. He has won a New York Press Club award and a National Headliner Award for columns on the economy and investing.
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