Kids may not have part-time jobs or cars. But they likely have some source of Money like birthday gifts, an allowance or odd jobs such as babysitting or doing yard work. And they certainly have wants, ranging from the coolest name-brand clothes to the latest tech gadgets. That is why the preteen years are ideal for teaching your children good money practices, before they have significant expenses or income, according to www.bankofamerica.com.
Here are some crucial steps for starting that process:
Set up a Savings account: Parents should open a savings account with their child to teach them about money management skills. Children can always spend some of their money, but help them learn that it is important to always save some. Even a few naira a month can have a big impact over time and help create a habit that serves them later.
Save for a goal: Help your preteens set goals for savings; say, buying an expensive video game console or a pair of shoes, to increase motivation. Telling your children about a savings goal you had, a new TV for the family, for example, can help them better understand how they can benefit themselves. Then explain that they can use the money in their savings for those items. And remind your preteens that the money in the savings account isn’t for day-to-day purchases. Discuss the time value of money with children and how it grows over time.
Discuss the power of compound interest: You don’t need sophisticated financial knowledge to teach your children that their savings will earn interest, and those earnings in turn generate more interest. That is compounding. You can use an online calculator to demonstrate how compound interest works on even a small amount of savings.
Teach preteens how to monitor and manage their accounts: Parents should consider scheduling regular times to sit down with their preteens and review their account balances and activity together. This activity helps create a habit of paying attention to their accounts and seeing how close they are getting to their goals or remind them to continue saving vs. spending.
Discuss wants versus needs: Children often need help understanding the difference between necessary and discretionary purchases. Encourage them to determine whether they truly need something, and explain how forgoing small purchases, such as pizza or music downloads, can help your child save up for more important purchases.