The year was 1994. I had a bowl cut, and I had just turned 10. I got an allowance every week for doing chores, and every week, I spent the whole thing on candy. No one would blame a 10-year-old for such candy-related financial recklessness, but my spend-first approach didn’t stop with candy. By the time I recognized it as a problem, I –like many of my Millennial peers– was saddled with massive debt in a depressed economy.
Fast forward: the year is 2016, bowl cuts have faded to memory, and I just became a dad. A dad who doesn’t want his daughter to survive college on beans and rice like I did. A dad who’s going to give her the skills and modern tools she needs to be debt-free and make more money than I ever have. Here’s a step-by-step blueprint for raising a fiscally responsible child.
Kids make dumb mistakes (guilty!), but they’re also hungry to learn if you give them half a chance. Case in point: the first time I was in charge of my family’s dog, I left a door open and he ran away. It felt awful! But thanks to that experience, I was never careless with the door again, and I did such a good job training our pup to stick around that he earned the nickname Velcro.
From the instructive opportunity of a single mistake, I learned about risk and laid out successful strategies for long-term peace of mind.
Learning through mistakes and practice is critically important for young people. So why put off their chance to engage with something as important as finances? The earlier you can start introducing financial realities, the better.
Kids are usually ready to work with numbers around age 4 or 5. When my daughter’s ready, I’ll make three accounts for her– savings, spending, and charity (each will likely be a shoe box decorated with way too much glitter).
The charity account will be mandatory– 10% of any allowance or gift money goes in. It’ll be a great way to explore fractions (pizza makes for a fantastic teaching aid!), and helping her pick a charity to donate to will open up new frontiers of conversation. Will she pick the “I Have a Dream” Foundation? A zoo? I don’t know! She’ll get to lead the way and see how her choices can make the world a better place.
The spending account will be in her room, to do with what she wants. A little candy at the grocery store? Go ahead, it’s your money! But the savings account will stay with me. Once a week on allowance day, we’ll take it out, add it up, and –here’s the kicker– add more money, thanks to the comically high interest rate her glittery shoebox accrues.
Having a few “bank accounts” early on can do a lot for a kid. They learn about money, banking, and donating to charity, and they have fun while engaging with math. The results? By age 10 –when I was blowing my allowance on candy– your kid can be donating to charity on a regular basis and understand the value of compound interest.
Don’t shield kids from the bills beast, prepare them
Let’s fast forward to the preteen years.
Your kid has grown up quite a bit, and they want more freedom and money. The glittery shoe boxes probably look a little worn out by now, so it’s time to upgrade to real bank accounts and give them some grown-up responsibilities like paying bills. That’s right, I’m going to let my kid pay the electricity bill.
Before you talk about paying bills, they’ll need a bank account to pay from. It’s easy to open bank accounts for kids. You only need to bring a few basic items to your bank:
Your picture ID (passport or driver’s license) and info (address, email, date of birth)
Your kid’s info (social security number and date of birth)
Some money to deposit
You don’t technically need to bring your kid, but why miss out on the chance to let them participate? They can dress up, talk to an adult who will be very impressed with them, and there will probably be some free lollipops involved. Hopefully, that’ll make up for the sub-glitter box interest rate…
Once they have their very own bank account to park gift money and allowance in, download a bill paying app like Prism on their smartphone or computer. After you link a bill to their app, they’ll get a notification every time the bill becomes available. When they pay the bill from their own bank account using the app and send you a screenshot of the completed transaction, transfer that amount plus a bonus $5 into their account. They’ll be so practiced and motivated to pay bills, they may never experience a late fee in their life.
Welcome to the real world, kid
Fast forward again to the teenage years. If you’ve taken the steps above, your kid will be a bill paying rock star who understands why prioritizing savings makes sense.
Time for their first jobs. You can start slow with part-time jobs or summer jobs– nothing that takes away time they need for school and friends. As I write this, my daughter is chewing on a wooden duck. Imagining her depositing her first paycheck is a beautiful thought. You go, girl!
With jobs will come new opportunities to make mistakes, but also the opportunity to learn from them, to balance friends and work, to overcome challenges, and to access way more money than ever before. That’s why it’s time to introduce a few more fee-free apps– here’s a few that your kids can benefit from now.
Qapital is about as fun as savings gets. By creating your own rules (for example, round up the amount of every purchase and save the difference), you save towards specific goals. What will your kid think is worth saving towards? Truebill is the perfect way to make sure you only pay for what you want– it shows all your recurring expenses, offers insights on how to save money with new subscriptions, and lets you cancel any recurring bill with a single click. Don’t worry– I’m sure I’ll be the one paying for the Netflix subscription in 15 years. Penny cracks jokes and basically texts with you about your finances. It’s like chatting with a friendly robot who tells you how you’re doing this month and uses the occasional GIF or internet meme to emphasize a point.
Invest in your kids and give them some credit
There are a couple ways to help your kid build credit before they turn 18, when they can get their very own credit cards. While an 18-year-old with a credit card and no financial education makes for a scary situation, a decade of budgeting practice sets them up for success.
Credit debt is the one mistake you don’t want your kid to make in order to learn. Luckily, there’s a great website that helps make sense of it all: CreditKarma. Here’s a few of the resources the site offers:
Free credit reports (yes, free!)
Credit card comparisons that help you pick the best one
Advice on auto loans (I shudder to consider this possibility, as my daughter flashes a winning but drooly smile)
Accessible articles that break down complex financial issues like student loans
After they have a credit card and access to CreditKarma’s helpful knowledge base, take one more big step. One that reminds them of the rewards made possible by not spending all of their money on candy and other short-lived pleasures: investment. Here are some of the best free investment resources you can get.
Robinhood lets you trade stocks for free. It’s pretty new on the scene and has a lot of people excited. With lightning-fast trades, smart notifications, and no trade commissions or minimum balance, it’s the friendliest way to invest. Estimize provides actionable investment insights thanks to their large, diverse community of contributors. The Estimize blog is an asset to anyone navigating the stock market. To dive a little deeper with investment data, StockTwits is the number one social network for stock traders and a great resource for real-time trending updates.
The parental peace of mind of planning ahead
Thinking back on my childhood, I have no regrets. I explored, I learned, and I put a lot of money into candy instead of savings. Ignorance was bliss, at least for awhile. But in an era when the average American household with debt carries a $15,762 balance on credit cards and $130,922 of total debt, there’s no denying the importance of financial education. I could have used more help and practice managing money before I spread my wings, and clearly, I’m not alone.