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Teaching Kids to be Financially Responsible

Smart money management is about making the right choices to reach long term goals. You can teach your kids the basics they will need for life.

By Darryl Montgomery,  Wells Fargo Regional President—Greater Houston

Most parents are determined to provide a higher standard of living for their children than they experienced as children.  What’s more, we live in an age of instant gratification. That’s why it is critical to extend our money management values and to teach financial literacy basics to our children.  Yet parents need to do more than talk. If parents don’t set good examples in managing their own money, it will be a challenge for kids to take this advice seriously.  

My son Blake is now 26, and he and his wife enjoy a comfortable lifestyle and have excellent credit.  I’d like to think that our son’s upbringing helped contribute to his good financial habits as an adult.  When he was a boy, my wife and I spent time talking with our son about smart money management.  We also opened both checking and savings accounts for him when he was a teenager.  This taught him how to balance the money he received from gifts and his allowance. I can still remember how proud he was to have his own account.

It’s never too early or too late to learn smart money management skills. Parents can begin teaching financial principles the moment their child gets a piggy bank.  Talking about money management can be as simple as explaining the difference between money that is earned and money that is received as a gift.  Discussions should get more in-depth as the child matures.

Here are some ideas to get things started in your household:

The Family Budget: A good way to engage older kids is to use play money to explain how mom and dad earn ‘X’ amount, the family’s monthly bills total ‘X’ amount, the family saves ‘X’ amount and so on.  For a more realistic approach, you may want to use actual billing statements.

Allowance: I’ve always felt that if you give your children an allowance they should earn the money by doing household chores.  I also support providing a financial incentive for earning good grades.  In both instances, earning money is stressed and children learn how rewarding it is to be paid for working. 

Cash vs. Credit:  Credit cards are a great way to establish a credit history needed to make big purchases such as a vehicle or a home — yet parents must stress that money borrowed on a credit card must be paid back, and often it’s paid back with interest.  When my son was younger, I told him that credit is a privilege, not a birthright, and your good credit may be taken away from you if it is abused. 

It’s important to have a discussion with kids about credit cards and credit history before they enter college or the workforce. Then, they will have the knowledge they need to make responsible decisions that will benefit them for years to come.

Programs for Kids: I highly recommend Wells Fargo’s Hands on Banking® program, available online at handsonbanking.com.  This is a great learning tool that provides age-appropriate money management lesson plans for everyone from 4th graders to adults.  The lessons are narrated, animated, colorful and fun. There’s also a Spanish-language version — El futuro en tus manos®.  

Teens with Jobs: Tell your working teenagers to put aside “spending money” and set up a systematic way to save.  I recommend that employed teenagers begin to save about 10-20 percent of their earnings. I also encourage teens to keep their spending money and savings in separate accounts. 

Use the Tech: It is so convenient these days to deposit money into your child’s account from your mobile phone so they can go to the movies or to enjoy a pizza with their friends while you’re at work or away from home.

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