Generations of parents have taught their kids these golden rules: Wear a seatbelt, don’t smoke, eat your vegetables. But we often forget vital financial lessons: Save money, avoid credit card debt, invest for the future. With high schoolers scoring an average of 69 percent (D+) on the Treasury Department’s 2012 National Financial Capability Challenge survey, it’s clear that families need help starting these critical conversations.
As a member of the President’s Advisory Council on Financial Capability, I helped develop MoneyAsYouGrow.org, a new national initiative launched by the White House in May to help parents talk with their kids about the 20 things they need to know about money.
Good news: There are only four things children need to know for each age group. Here are some examples, with suggested activities and conversations to help drive home each concept.
- 3-5 year olds: You may have to wait before you can buy something you want.
- When your child is standing in line for a turn on the swings, or looking forward to her favorite holiday, point out that sometimes we have to wait for things we want.
- Find three jars (or cans) and label one for saving, one for spending, and one for sharing.
- Suggest that your child put some of the money she gets into the saving jar, so she can buy a toy or treat when she has saved enough.
- 6-10 year olds: Putting your money in a savings account will protect it and pay you interest.
- Visit a nearby federally insured bank or credit union with your child.
- Ask about the interest rate on a savings account.
- Discuss with your child how money in savings accounts is protected by federal insurance. If the bank goes out of business, she will get her money back.
- Open a savings account for your child.
- 11-13 year olds: Using a credit card is like taking out a loan; if you don’t pay your bill in full every month, you'll be charged interest and owe more than you originally spent.
- Discuss why you should not use a credit card to buy something that you can't afford to pay for with cash.
- Look at credit card offers online with your child, and compare the interest rates.
- Using the Credit Card Repayment Calculator at federalreserve.gov, see how long it could take to repay a $1,000 credit card debt by making the minimum monthly payments.
- Discuss how a credit card can be useful for making purchases online, or as a convenience.
- 14-18 year olds: When comparing colleges, be sure to consider how much each school would cost you.
- Point out that college grads earn almost twice as much as people who did not go to college.
- Discuss how much you can contribute to your child's college tuition and expenses each year.
- See what schools cost by finding the "net price calculator" on their websites; know that most families don't pay the tuition sticker price.
- Use the Consumer Financial Protection Bureau's Paying for College Cost Comparison Worksheet at consumerfinance.gov.
- To estimate your financial aid, use the FAFSA4caster tool at fafsa.ed.gov.
- Go to studentaid.ed.gov to research additional loans, scholarships, and grants,
and use the calculators to estimate your monthly loan payments.
- 18+ years: You need health insurance.
- Comparison shop for insurance like you would for any other product.
- If your parents have health insurance, see if you can stay on their policy—with some exceptions, you are entitled to, by law, until you turn 26.
- Get more information about the health insurance available to you at healthcare.gov.
- Purchase renter's insurance if you lease an apartment, and auto insurance if you own, lease, or rent a car.
Moms and dads, this is our responsibility. Research shows that the number one influence on children’s financial behavior is their parents. So now is the time to make sure the next generation knows about money so that we don’t experience another financial crisis in 10 years.