Tips to Raising a Financially Responsible Child

Raising children is a joy, and as a parent, you’re likely to find yourself being more mindful of your actions as they grow older. Wanting to instill good habits early on, you may be thinking about what you can do to not only teach them the value of a dollar but also how to be smart with their money. To help you on this pathway, here are a few ways to raise a financially responsible child.

Younger Children

It’s important to recognize that every child learns differently. While one may be a more visual learner, another may only need to be told how to approach a particular scenario. It is best when raising young children to start early with chores and tasks that allow them to earn coupons that can be traded for prizes. Smaller prizes can be awarded for chores that don’t take long, or big prizes can be awarded that require them to save up. This allows you to discuss the benefits of near versus long-term goals.

School-Aged Children

Once the child is in school, they’re likely to be learning about the different coins and bills and their values. At home, you can exchange the prizes for actual money, having your child count it themselves and hand it to the cashier when purchasing something at the store.

If your child is old enough to take on odd jobs around the neighborhood, encourage them to do so. This will allow them to make more money over time. They can then choose to purchase a toy or game with their earnings, or you can encourage them to save for something bigger in the long run. This is especially helpful once the child reaches middle school. The basics of investing should be a topic of conversation that allows them to think for themselves and determine if they prefer immediate gratification or taking risk and potentially growing it in an investment.

While in middle school, you can give them an allowance based on what is spent on clothing, school lunches, gifts, and entertainment. By allowing them to see and keep track of the budget alongside you, it helps them to have a better understanding of what it costs to live and have basic necessities. This will make it easier for them to decide if they would rather make a lunch at home and take it with them to school to save the allowance money for other things they want.

High Schoolers

By the time your child is in high school, they may have a part-time job. If they do not, this would be a great time to encourage them to find one. Even if it is only a few hours each week, it gives them a chance to not only earn money, but it also introduces them to how taxes work. If a debit card doesn’t seem to be working well, a cash/envelope system can be a great way to help them better manage their money.

You should also offer to match their investment into a ROTH IRA if there is earned income that can be used.

College-Aged

Once your child is in college, they should be managing their own monthly budget even if you are subsidizing it. Your discussions can involve the importance of building credit but how it can also be a trap if they do not use it correctly. You can certainly help them apply for a credit card but explain that it should be paid off monthly. It is important that you do not cosign for the credit card. The reason is that if they miss a payment or go over the limit, it will hurt your credit.

If your child is going to school using student loans, make sure they are aware of the monthly payments that will be expected of them once they graduate. Discuss the type of salary and future earnings their chosen field will provide in comparison to the loans that are being taken out for them to attend school and earn their degree.

Depending on their age, younger children might be more apt to spend their money on something they want now. However, as you continue the discussion about money as they grow older, they may begin to acknowledge that the choice to save will lead to better, more thought-out decisions in the long run.

About the Author
Taylor Steele, CFP®, CLU®, AIF®, EA* is a Branch Manager and Managing Partner at Cadent Capital. Taylor obtained both his Certified Financial Planner™ certification and Chartered Life Underwriter (CLU®) marks. He is also an Accredited Investment Fiduciary (AIF®) and Enrolled Agent*. As one of the two second-generation owners, he is part of a team devoted to helping clients build better futures by making better decisions. If you’re ready to let us help you better prepare for tax season, call us at (972) 777-4991 or visit our website.

*Taylor’s activities as an Enrolled Agent are independent of Raymond James