Teach Your Children to Tread Carefully in the Financial Waters Before They Set Off to Swim
Learning how to count is a staple of elementary education, as is teaching children about different denominations of money and how to purchase goods with them. Too often, however, this is about where our children’s financial education falls off. We teach them enough to get by but not enough to truly thrive, and the result is an adult population that piles up record amounts of credit card debt, spends beyond its means and engages in highly risky lending practices. So instead of simply sending your kids off to college armed with credit cards and the most cursory of instructions, truly teach them how to responsibly manage their money. Perhaps this will lead to more financially literate future generations.
Imparting this lesson is also actually disproportionately simple compared to the considerable benefit it provides. In fact, all you have to do is remember the way in which you taught your kids how to swim.
1. Prepaid Card (Swimmies)
The first step is letting them get comfortable in the water, so to speak. Prepaid cards are the floatation devices of personal finance, so begin your children’s practical financial education by opening prepaid cards for them and loading a certain amount biweekly. This will provide your kids with a measure of financial autonomy, but will also stress the important of budgeting. Additionally, since most prepaid card accounts allow online management, you can review and monitor your children’s spending.
2. Cash Allowance (A Kickboard)
When your kids’ purchasing demonstrates the requisite responsibility, you can take the Swimmies off and hand them kickboards. Do this by increasing their allowances and by providing them monthly and in cash rather than in the form of biweekly prepaid card deposits. This will force children to budget over a longer period of time and physically handle money without misplacing it or spending it frivolously. If they exhaust this money quickly, too bad. They will merely have to learn their lesson and wait for next month’s allotment. If they continually blow through their funds and exhibit fiscal irresponsibility, then you can demote them to prepaid card use and the lower allowance that comes with it.
3. Checking Account (hands-on balance support)
However, if they save the majority of their money, spend the rest wisely and demonstrate general aptitude using cash, you should co-sign for checking accounts. This is tantamount to taking the figurative kickboards away and letting the kids try to swim while you remain in the water, providing moral and physical support as needed. Learning not to overdraw a bank account or bounce checks in a relatively low-pressure environment is an invaluable lesson for a young person, given the prevalence of check and debit card use in everyday life. Give your kids the opportunity to falter when they are young and they will be all the more prepared for adulthood.
4. Credit Card (Parental Supervision)
Once you think your kids are ready, it’s time to get out of the pool and let them try to swim with their own small lines of credit. You can provide these by co-signing for student credit cards or making your kids limited authorized users on your accounts. Being able to manage credit helps children learn how to spend within their means and pay their bills in full each month, which are important skills that many adults have obviously yet to grasp themselves. Still, though you have gotten out of the water, you must remain close by to help your kids should they run into trouble.
Once your kids have demonstrated responsibility with all of these different methods of spending, they will be truly prepared for financial adulthood. They will be familiar with using cash, writing checks and, most importantly, not spending beyond their means. Preparing children for their own lives is the primary job of a parent. Parents teach their kids how to read, tie their shoes, ride bikes and swim. Why not teach them how to manage their finances too?
Odysseas Papadimitriou is the CEO of CardHub.com, a website that helps consumers find credit card deals and operates the nation’s largest gift card exchange.
