Teaching kids financial smarts
My favorite part of talking with parents about kids and money is listening to their excellent questions. Recently, I spoke to an audience of moms who wanted to know how to teach their grade-schoolers, tweens and teens some financial smarts. Here are some of their questions, along with my responses:
Savings accounts
A: When I was growing up, my parents made a point of taking me to the bank to open a savings account once I had a basic understanding of money. I was introduced to a bank officer, who showed me the vault and took my first deposit. I carried on the tradition with my kids.
Having that bank account is a way to teach kids about the concept of earning interest and watching it grow, the value of setting aside money for something special and becoming a disciplined saver. I also think having the bank officer explain to the kids the ins and outs of a savings account also makes for a stronger impression than hearing it from dad or mom.
That said, the pennies in interest that accumulate monthly on a savings account are not likely to generate much of a wow factor. But that's OK. The idea is to get your child into the habit of saving.
Kids aren't born with this gene, it's learned. And once kids get the idea, they'll get an appreciation of how good it feels to have money in the bank.
Chores and allowances
A: As I've said before, I'm in the camp of keeping allowance payments and chores separate. An allowance is strictly a tool for teaching kids how to manage their own money responsibly. Set an amount that fits your budget and pay on time.
There should still be an expectation that the kids will chip and help out around the house. And if they do something extra, such as babysitting, there's nothing wrong with paying for a job well-done.
If you are in the work-for-pay camp, keep your chore-tracking system simple so you're not tied up in knots sorting through whether the jobs got done and who actually did them.
Debit cards
For the most part, no. Debit card transactions do not appear on your credit history or affect your credit score, such as the FICO score.
However, there is an indirect impact. Credit card issuers like to see debit cards used responsibly, meaning not overdrawing your bank account. So good habits count when it comes to applying for that first credit card.
Credit cards and college
A: Yes, if he or she is mature enough to handle the responsibility. But if your student is having trouble keeping track of cash, consider a debit card for now.
It's harder these days for college students to get around without a credit card. The plastic comes in handy in emergencies, last-minute plane tickets and unexpected student fees for on- and off-campus events. One caveat: Set the ground rules on what's an emergency and what isn't.
If you want to start building your student's credit record before age 21, you can cosign on a card or add your child to your account as an authorized user. But that puts you on the hook to cover those debts. Or consider a secured card with a $500 credit limit — and always look for cards with low or no fees.
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