Tips for teaching children — of any age — financial responsibility

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Creative ideas to help preteens, teens and young adults learn about the value of money and how to manage it well.
Understanding how money works is among the more important life lessons children can learn, and the benefits go beyond dollars and cents. It can help them develop a number of positive qualities, including responsibility, self-discipline, organization and — in the case of teaching them philanthropy — the power of helping others. And it's never too early to start, or too late to help.
These age-by-age tips can help you impart the true value of money to the children in your life.

For young children

Teach them to budget
An allowance can be a great first step in showing your kids how to manage money. You might give money every week to the youngest children, at two-week intervals for preteens and monthly for teenagers. Gradually spreading out the timing will help your children understand the need to manage their spending.
Show them the value of saving
It's only natural for money to burn a hole in the pockets of the youngest kids. But it's important for them to discover the benefits of delayed gratification. If there's a toy or a game they have their eyes on, suggest they forgo spending their allowance on ice cream or another immediate pleasure and instead save for a few weeks to make the bigger purchase.
Let them earn a little extra
You probably expect your kids to clean their room, help with the dishes and do other daily chores. But consider offering them the chance to make extra money by helping you organize the garage, washing the windows or taking on another job that goes beyond the routine. Getting paid for extra work will help instill good habits and give children more control over saving and spending.
Introduce philanthropy
Even when your kids are very young, you can speak with them about your charitable gifts. Talk to them about organizations they might like to support, then earmark part of their allowance for donations to those causes. And make it about more than just money — giving is about donating their time and thought as well. You might, for instance, encourage your child to save money over the course of a year for a local charitable cause that interests them — an animal shelter, maybe. Coordinating with the shelter, you can take your child to the store to buy something, like animal beds, that the shelter can use and then deliver them.
Create learning opportunities
If your children spend their entire allowance right away, resist requests for more money before their next allowance is due. Negative consequences can carry powerful lessons. If you talk with your kids about how to do better the next time around, they'll start making smarter choices.

For teenagers

Show them how to create a monthly budget
You can work with your kids on making a plan for spending an allowance or earnings from a part-time job. Once they're 13 or 14, they may be thinking about buying a car or making another big purchase in the next few years. That takes a lot of effort and planning.
Plan for college
Now is a good time to talk about the growing cost of higher education. Let your children know how much of the expense you'll be able to cover and whether they'll need to contribute through savings or work. If you've established a college savings plan, discuss how it works. Explain the difference between tuition costs at a private college and a state school. Discuss options for either government or private loans, and have them do some research on possible opportunities for scholarships. Open conversation and solid research now can be crucial.
Create learning opportunities
If your daughter is shocked by how much comes out of her first paycheck, sit down with her and explain taxes and Social Security. If your son wants his own bank account, show him how to balance a checkbook or keep track of an account online.

For college-age kids

Talk candidly about the pitfalls of borrowing
Your kids will be bombarded by applications for credit cards and car loans starting in the college years and continuing as they move into the workforce, so have an open discussion about not taking on too much debt. Emphasize the importance of paying credit card bills on time and, if possible, in full. Explain that it's crucial to keep loan balances manageable to avoid damage to their credit report, and why that's important.
Help analyze career aspirations
As your kids choose which college to attend or whether to go to graduate school, encourage them to be realistic about their income prospects. For example, attending a very expensive university may not pay off if their goal is to work as a teacher. In lieu of additional years of schooling and debt, have they explored internships to gain vital job experience? Remind them that working for no pay now may be worthwhile if it opens the door to full-time employment later.
Offer selective financial support
Although providing unlimited resources to college-age kids could delay their financial independence, some expenses, such as medical insurance or career counseling, are worthwhile for you to fund, particularly because your children may be unlikely to spring for those "luxuries" themselves.
Talk about the need to budget carefully
Now out on their own for the first time, your kids need to learn how to make larger sums of money from summer jobs or other sources last through an entire school year.

For young adults

Emphasize the importance of saving
At this point in your children's financial lives, your guidance may be seen more as interfering than helpful. But drawing on your own experiences, you can point out how long it takes to save a down payment for a first home or to start a business. If marriage is on the horizon, that only increases the stakes. Young adults should work toward setting aside at least 10% of their income for long-term financial goals. With careful planning and budgeting, they'll build a solid financial base and good habits for a lifetime.
Encourage them to set up an emergency fund
Here, too, sharing what you've been through may be crucial and help illustrate your point. You can talk with your kids about the kinds of unexpected costs that have arisen in your life and remind them how, in today's uncertain economy, job losses are all too common. Give suggestions about how to build up a rainy-day fund that can cover at least six months of living expenses.
Remind your kids that retirement will arrive sooner than they expect
Remember how you felt in your 20s when you had a chance to join your company's 401(k) plan? Your kids, too, probably think of retirement as an inconceivably distant event. But you can point out the advantages of starting early and increasing contributions as paychecks grow. While some advisors may recommend setting aside at least 10% of your pre-tax income for retirement, each individual's needs will vary. Encourage your children to take advantage of any company match available through an employer-sponsored retirement plan and to let the power of compounding help the savings within 401(k) plans potentially grow at an accelerated rate. Remind them that their biggest asset may be youth itself. Good habits they form now could benefit them throughout their lives.
Share what you've learned about investing
Lessons that are old hat to you likely come as revelations to new investors. Matching risk levels to their goals, diversifying their assets and avoiding investments that sound too good to be true are all important steps on the road to a lifetime of insightful investing. Urge your kids to do their research, to never stop learning and to take action today.

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