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Have you made money mistakes? If you’re like me, that’s a resounding yes.
Growing up, I saw my spendthrift mother and stingy father constantly fret about bills and argue about money but never make a budget or seek advice. In high school, I learned a bit about earning and saving money on my own through part-time jobs.
During my college years, I received some hard lessons about how to spend wisely. Ditto for credit card debt in early adulthood.
I wish I had received guidance about how to be smart about money. It would have saved years of stress as well as delays in making major life purchases like a car and a home.
Whatever your relationship with money, don’t let your children be uninformed. Teaching kids about money is one of the most important life lessons you can impart to them. What they learn will serve them well in adulthood.
If you don’t know where to start, let’s help you set them on the right track. Here’s a handy guide on how early to begin with the basics, when and how to go to the next level, and what subjects to tackle, such as how to buy life insurance for your children.
Teach Your Child Basic Money Matters
When does your child’s financial education begin? It’s earlier than you may think.
Lead By Example
To quote Dave Ramsey, “The first step to teaching your kids how to handle money is being a good example.”
Every parent knows their kids mimic them from a very early age. Cue the story of parents shocked by their darling 2-year-old shouting an expletive in public.
They’re not only picking up your most colorful language but also paying close attention to your financial patterns — what you’re buying, how often you spend, if you look for deals, if you save. They’ll mimic that, too.
Financial self-control is challenging, but now you have additional motivation. Leading by example is the most impactful way to guide your child to a solid financial future.
Now let’s detail a timetable of what financial concepts to introduce to them and when.
The Times for Teachable Moments With Money
Pre-kindergarten: Yes, you can start your child’s custodial or joint savings account this early, as they’re already at an age where they can count and they’re also ready to start understanding basic math skills.
You can explain the basic concepts of a bank and of saving money to them, making games out of getting an allowance, counting money, saving money, and visiting the bank to deposit money.
An additional bonus for developing early math skills in your child? They foretell higher aptitude in high school math and higher rates of college enrollment. A Vanderbilt study determined that for “both males and females, mathematical precocity early in life predicts later creative contributions and leadership in critical occupational roles.”
Elementary school: At this age, children can learn more about earning money and even the concept of credit cards, especially how having a savings account can help them be more responsible regarding credit cards.
Middle school: This is a good time to teach your child how to create a budget, how to make savings a part of it, and the benefits of doing that.
High school: Your child can now use your lessons to help them figure out what they need and how to approach it regarding their post-graduation plans, from student loans to leaving the nest. They’ll see how having started saving early benefits their plans.
Help Your Child Establish Credit
High school is also a good time to impart the importance of having good credit. Teach them that their credit score will be used by potential landlords, mortgage lenders, credit card companies, insurance companies, the government, banks, credit unions, human resources departments, and mobile phone companies.
Having a healthy credit score will increase approvals and lower costs when it comes to them getting a car loan, insurance, a mortgage, and even a cellphone.
It’s possible to start building, or preparing to build, your teen’s credit score before they’re 18.
In fact, you would’ve already taken care of a few items for them — learning good financial habits early on to avoid making mistakes, and opening a savings account to establish a banking history.
You can also guide your child toward opening a checking account, which most banks will allow at age 13 with one parent as the joint owner until the child turns 18.
You can also add your teen as an authorized user on a secured credit card.
As young adults, if they do well as an authorized user, they can get a job to meet the income requirement to apply for a store card, a student credit card, or a secured credit card on their own.
How to Maintain Good Credit
Follow up with your teen and young adult about these credit card tips that will help them not only improve their credit score but also manage their finances better:
- Try not to use credit cards except when necessary.
- Keep a low balance on your credit cards. Maxing out your cards may result in a lower score, and it will be harder to control your debt.
- Pay more than the minimum on your cards to save money, pay off the balance faster, and reduce your credit utilization rate to improve your credit score. The balance at the end of every month will accrue interest, which makes it even more difficult to pay off your balance.
- Make payments on time to avoid late fees and your interest rate increasing.
Educating Your Child About Life Insurance
The last thing most people want to deal with is insurance. But teaching your child about it is a smart thing to do since insurance is purchased for so many aspects of life.
And especially with life insurance, the younger you are when you buy it, the lower your premium. I did receive good parenthood advice in that regard, from my father-in-law shortly after my husband and I married in our mid-20s. His advice has served us well.
When your child is a teenager, you can start talking to them about life insurance so they know what to expect if they want to buy a policy in their young adulthood.
Of course, before that age, you can buy life insurance for your child if you want, and make your first attempts at imparting life insurance benefits.
Why would you buy life insurance for a child? There are several reasons, including:
- Providing a savings plan
- Locking in insurability
- Protecting student loans
- Providing financial support for your grieving family
Here are the types of life insurance available.
Term Life Insurance for Children
With term life insurance, your child is covered for a particular period or term, at a very affordable rate, from $3 to $7 a month on average.
Considering that term life insurance for adults can be almost double that rate, locking in a lower rate as a child may be prudent over the long run, especially if your child has longer-term health concerns.
At the end of the term, your child has the option of extending coverage on the policy, replacing that policy with a new one, or converting it to a permanent policy.
Whole Life Insurance for Children
Most children’s life insurance policies are term, but some children’s whole life insurance products are available.
This permanent policy continues as long as the premiums are paid, and a certain amount is designated for the cash value portion, which grows and accumulates interest over time.
When the policy matures, your child can take over ownership. There are many perks to this, such as most policies automatically doubling the amount of coverage. So your child can build the policy’s cash value into a larger amount. They can also increase their life insurance coverage for their own families.
That cash value allows the policy owner to borrow against it and use those funds in any manner they choose. Many policy owners use the money for college tuition, buying a first car, wedding expenses, or a down payment on a house.
Child Riders
If you don’t think buying a life insurance policy for your child is right for you, but you’re concerned about paying for burial expenses if the unthinkable happens, you can look into getting a rider for your child on your term life policy.
A rider is an add-on to a basic policy. It’s very affordable at around $60 annually, and it covers all of your children until they are no longer members of your household.
We hope you now feel better prepared to teach your child money matters, and look forward to enjoying the fringe benefit of improving your own dollars and sense.
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This content is brought to you by Anne Davis.
Photo: Shutterstock
