It's obvious that financial literacy is important for all of us as adults. But at what age do we need to start developing financial skills? It's all too common to see young adults who are unprepared for financial independence. To help avoid this, training in financial literacy can be useful long before college - even before a teenager takes his first part-time job. It's all about taking an approach that's appropriate to your child's maturity level and personality, but the foundations are universal:
Teach kids where money comes from. Financial literacy starts when you help your kids understand money simply by talking to them about it. As they progress from preschool to elementary age, kids are fully aware if one or more parent works. They may ask why a parent works every day, and this is a great opportunity to explain the purpose of earning money for the household. They can begin to grasp that having a place to live, taking care of basic needs and purchasing extra items or outings all cost money. They will realize that in order to spend money on these needs and wants, the money has to be earned.
Let children experience making purchases. Even at a very young age, children can benefit from helping make a transaction at the store. If you simply allow them to hand cash to the supermarket clerk, they will grasp the exchange of money and goods. Although many people primarily use debit cards, the handling of cash (and counting up dollars and coins at home) can help children realize the concept of money's numerical value.
Start with simple saving and budgeting. Financial literacy and pediatric psychology experts are divided on whether to reward children for chores or simply give them allowances. However kids receive money, it's important that they understand the need to budget it. If your daughter wants a new video game, you could let her know how much money it takes to buy the game, and help her set a goal for when she should be able to purchase it. The simple accomplishment of successfully saving up for a purchase helps build financial confidence. It also teaches consequences; if your son chooses to buy a toy motorcycle before reaching his savings goal for a skateboard, he will see how one purchase decision affects the other.
Familiarize your child with banking products. Once your child has a basic grasp on saving and spending money, consider demonstrating some simple banking tools. The concept of long-term savings is a fundamental one to begin with. With Ally Bank, it's easy to start a new savings account online, and while we don't offer minor accounts, you can open a custody or trust account if you like - or just open an account for yourself and share with your child how it works.
Plus, we don't charge a monthly maintenance fee, there's no minimum opening deposit requirement and like most banks, your funds at Ally Bank are FDIC-insured to the maximum allowed by law. Starting an Online Savings Account - and explaining to your child how its balance grows over time - might be part of the steps you take toward building your child's financial literacy.
Visit Allybank.com or speak to live, 24/7 customer service at 877-247-ALLY (2559) today. And for a more formal financial literacy curriculum that includes the subjects of loans and credit, check out Ally Wallet Wise, a financial literacy program from Ally Bank.