An expert in the credit card industry shares five practical ways to help our kids become responsible adults.
Ben Woolsey, Director of Marketing for creditcards.com says kids need to learn how to handle their cash, and it should start at a young age.
Tip #1: One way to teach a four year-old the value of a dollar is to take them grocery shopping and give them a calculator so they can add things up as you go along.
Woolsey says, “I think this is one of the most fundamental things you can expose kids to. Show them what different items costs, how to get the most for your money, how to work within a budget, get the most nutrition and the things the family needs to survive”
Tip #2: When dealing with an allowance, whether you give them $1 or $20 a week, Woolsey says we need to help our kids plan where to put their money, once they reach the age of about five or six, with a formula he calls 40/30/20/10.
40 percent is where you meet the immediate gratification needs of the child to spend the money they have earned. 30 percent is for short term savings goals like a toy or video game. The 20 percent goes toward more long term spending goals, such as saving up for a bicycle or vacation or a car, when they get to be 16. 10 percent is for charitable for giving because it is important to teach kids that there are kids less fortunate than you.
Woolsey says the old lemonade stand is a good way to help them with entrepreneurship, and it can be anything they are interested in, such as mowing lawns or sweeping the driveway. “It could be helping with or setting up a garage sale, or making arts and crafts and trying to sell those at a fair or a booth or door to door.”
Tip #4: set a savings goal.
Woolsey says start early. Many banks are going back to passbook savings accounts so kids can see their money grow, which could help them from running into trouble as adults
“It's really important to have an emergency savings fund as an adult in case you lose your job or whatever, so it's really critical to start as young as possible to learn those lessons.”
Tip #5: Put your teen’s allowance on a spending card and make them manage it.
Woolsey says, “It's really safer than carrying cash and it teaches an additional lesson on how to budget when you don't see the money and feel the coins or have money in your hands. You know how much is on the card and it teaches kids the whole process of going up to the cash register, swiping the card, and putting in a pin, which they'll do when they're adults.”
Another good thing about a spending card is that parents can keep an eye on what their kids are spending, and it can even be good for college kids so they do not overspend on credit cards.
As far as the kids wanting extra money beyond their allowance on occasion, Woolsey says for special events it is okay, but if they are just running out of money because they are not budgeting, parents need to use some tough love so they realize they cannot get everything they want by sticking their hand out.