Financial Milestones For Your Child: Age-by-Age Guide
How Do We Teach Our Children about Money?
Setting and tracking financial milestones for your child is as important as the physical development milestones we track with the pediatrician or the growth marks on our kitchen post because early money skills such as savings, budgeting and planning for purchases promotes financial literacy and prepares them for life on their own.
Here are some financial milestones for the different ages and stages of your child:
Baby Steps – Financial Milestones for Ages 3 – 5 years:
The important concepts they need to learn at this stage are that:
- Money is the currency we use to buy things
- Money is the reward of working or being productive
- Using Bargains, Deals and Coupons is a smart way to save money.
Fun activities like rewarding them for good grades and behavior with deposits in their piggy banks, teaching them to identify coins and bills, setting up pretend store games and teach shopping with real money. You can give a child a dollar and teach choices and value in selecting what they can spend that money on. Also compare prices of items in the store and differentiate between branded and non-branded items.
Training Wheels – Financial Milestones for Ages 6 – 9 years:
The important concepts our kids need here are:
- They cannot buy everything in sight or everything they want.
- Savings and Interest – What are banks and why do we need them?
- Cultivate a habit of saving part of their gifts and allowance.
This is a great time to start a child on an allowance and teach them how to appropriate their money, learn delayed gratification by saving for big-ticket items and using money as a tool to help solve the problems of others by contributing to a cause or charity. For religious people, the practice of tithing brings blessings and this is a wonderful time to introduce that principle. Learning to be generous is one of the most important financial milestones.
Opening a savings account at your local bank, also helps them understand the concept of savings, safety and interest. Track balances and let them watch it grow with each deposit, that will help build a habit of putting money aside regularly.
In David M. Schwartz’s “How much is a Million?” and “If you made a million” stories, Marvelosissimo the Mathematical Magician, teaches the various forms of money and concept of a million, a billion, and a trillion, easy for children to understand and makes the functions of the bank seem less intimidating. This great Scholastic video series is fun and entertaining for the kids, while teaching them life skills.
Skate-Boarding through the Park – Financial Milestones for Ages 10 – 15 years
The important concepts to learn at this stage are:
- Compound Interest and the Advantages of starting to save early
- The pitfalls of borrowing money and Credit cards
- Taxes!
By this time, most of our young ones may have earned steady allowances or some income through chores like cutting lawns, dog walking or paper drives etc.They also have saved some of their earnings.
Talk about a 529 savings fund for college and show them the advantages of compound interest and use an online calculator to show the difference between starting at age 10 versus 20, and how interest earns more interest.Personally, It’s always exciting to see how their eyes open wide, as they get it!
Credit has it’s benefits, but we need to teach them to avoid owing interest on credit cards and how to be smart about credit and borrowing money. Review your paycheck and the deductions to teach them that Uncle Sam will be taking a part of their earnings, even before they get to it.
Preparing to Leave the Nest – Financial Milestones for Ages 16 – 22 years
If they haven’t met any of the last financial milestones or you started late, don’t panic…it’s better late than never. They are starting to plan for college, a real job or career, getting their own apartments and be more financially independent. These concepts will help in their transition to financial adulthood:
- Maintaining a budget and planning for monthly expenses
- Determine career path and educational goals to achieve their dreams
- Emergency Preparedness – Emergency savings and Health insurance
- Retirement Accounts – 401(k)s, IRAs, Roth IRAs and other tax-advantaged accounts
- The importance and advantages of a good credit score.
If you are not watching entertaining financial shows like Suze Orman, Mad Money, Shark Tank, How I made my Millions, etc. with them by now, this would be a good time to start. Reward them for doing it at first and as they start learning to get financially empowered, they’ll love watching on their own.
Teach them how to budget by opening an account with a debit card and let them manage some of their costs. If you can afford to match their savings like a 401(k) up till a certain cap, that will model the real world and also give you access. (We know they like to hide information from us, except when it benefits them!)
Also use an online calculator and show how money grows faster in tax-advantaged accounts. Calculate and agree on the amount of emergency cash they should keep, experts recommend at least six-months living expenses and thankfully, The Affordable Care Act requires plans and issuers to offer dependent coverage available until a child reaches the age of 26.
Pull and review a free credit report from Annual Credit Report and educate the child about the implications of collections and low scores on everything from renting an apartment to finding a job.
We want our children to succeed out in the world and when we empower them with knowledge, we are helping to achieve these important financial milestones and mature into financial winners.
Ama Danesi 