Four Ways To Teach Kids About Money
by Rob Berger
Teaching kids about money at a young age is as important as ever. With advances in technology and complex financial products, the days of passbook savings accounts are long gone. Kids not only need to know about how to handle money responsibly, but they also need to understand everything from handling credit to investing for retirement.
Fortunately, there are a number of ways to teach your children about money. The most effective way is to involve your children in financial decisions that affect them. Below we look at four such ways to help your kids take responsibility for their own finances.
Online Savings Accounts
Letís face it, banking doesnít work like it use to! Everything can be done online now when it comes to your money. You might know what an online savings account is or might even have one for yourself, but how about one for your child? Some banks offer online savings accounts for kids that allow parents and children to work together and save money. This might be a great way to pay your child their allowance. You want to look for an account that is FDIC-insured and an account where the grown-up is in charge of all deposits and withdrawals. Kids should then be able to easily view their account information from their online account. By tracking their savings and earned interest, a child can learn the value of saving money. They can also learn the power of compound interest.
529 Plans are a tax efficient way to save for your childís education. Most of these plans offer several mutual fund options from companies like Fidelity and Vanguard. Like most investments, you have to decide how much risk youíre willing to accept. The key is to use the 529 Plan as an opportunity to teach your child about investing.
You can involve your children in deciding which funds to invest in. Your child can watch the 529 Plan grow, which helps them appreciate the value in long-term investing. They can also learn about the expenses that are part of any investment, and the impact expenses have on returns. And finally, by involving your child in the 529 Plan, they can better appreciate the value of a college education.
Any parent with children old enough to drive appreciates just how expensive it is to insure a teenage driver. Rather than just paying the extra cost, involve your children in the process. This could include showing them the extra cost of insurance as a result of adding them to the policy. Most car insurance policies provide a discount if your child has a ĎBí average in school. So let your child know this and the amount that can be saved with good grades. And if their grades donít qualify for the discount, make them pay the difference if they want to drive the card.
Prepaid Cards for Kids
Part of the challenge in being responsible with money is being able to manage an account. A prepaid card is a safe way you can teach your child to be responsible with their money in a world where credit and debit cards are everywhere. This approach is a bit controversial, as some parents donít want to put plastic into their childís hands. However, there are cards that are especially designed just for kids that only allow your child to spend money already added to the card. As a result, you canít over draft the account and a prepaid card canít hurt your credit. The trick is to find a prepaid card that has low fees.
The benefit of a prepaid card is that your child can easily see how much they have earned and spent. Unlike cash, they can track where they spend their money, which can help them spend more wisely. And if you wish, you can also track your childís spending habits.
About the Author
Rob Berger is the founder of the popular personal finance blog, the Dough Roller. He is also the author of 99 Painless Ways to Save Serious Money.