Given how important financial skills are to navigating life, it’s surprising that our schools don’t teach children about money. As a parent, however, you can teach your child important financial lessons — and you should.
“Look at the mortgage crisis and how many families lost their homes — 3.9 million foreclosures. Look at the amount of money — $1.1 trillion—we owe in student loan debt. The amount — $845 billion — we owe in credit card debt. It’s pretty clear that adults don’t know much about money. To help the next generation avoid the mistakes of their elders, and to live financially fit lives, they need to be taught the essentials about money,” says Beth Kobliner, author of the New York Times bestseller Get a Financial Life, and a member of the President’s Advisory Council on Financial Capability who spearheaded the creation of Money as You Grow, which offers age-appropriate money lessons for children.
Kobliner says children as young as three years old can grasp financial concepts like saving and spending. And a report by researchers at the University of Cambridge commissioned by the United Kingdom’s Money Advice Service revealed that kids’ money habits are formed by age 7.
“The sooner parents start taking advantage of everyday teachable money moments (for example, give a six-year-old $2 and let her choose which fruit to buy), the better off our kids will be. Parents are the number one influence on their children’s financial behaviors, so it’s up to us to raise a generation of mindful consumers, investors, savers, and givers,” she says.
Below are the top money lessons to be learned at each age.
Ages 3-5: You may have to wait to buy something you want.
“This is a hard concept for people to learn of all ages,” says Kobliner. However, the ability to delay gratification can also predict how successful one will be as a grown-up. Kids at this age need to learn that if they really want something, they should wait and save to buy it.
Money lessons at this age set the tone for later on. “You really can’t start too early,” says Kobliner. Speaking of her own family, she says, “When we go into a store, if I say, ‘We don’t have money for this,’ they’re smart — they know we have credit cards,” So, she would say, “We’re here to buy a gift for X, and we’re not going to buy anything for you, because we’re not here for that.” Kids then quickly learn that going into a store doesn’t always mean you’ll buy something.
Ages 6-10: You need to make choices about how to spend money.
At this age, it’s important to explain to your child, “Money is finite and it’s important to make wise choices, because once you spend the money you have, you don’t have more to spend,” Kobliner says. While at this age, you should also keep up with activities like the saving, spending and sharing jars, and goal-setting, you should also begin to engage your child in more adult financial decision-making.
Ages 11-13: The sooner you save, the faster your money can grow from compound interest.
At this age, you can shift from the idea of saving for short-term goals to long-term goals. Introduce the concept of compound interest, when you earn interest both on your savings as well as on past interest from your savings.
Ages 14-18: When comparing colleges, be sure to consider how much each school would cost.
Search for the “net price calculator” on college websites to see how much each costs when including other expenses besides tuition. But don’t let the price tag discourage your child. Explain how much more college grads earn than people without college degrees, making it a worthwhile investment.
Ages 18+: You should use a credit card only if you can pay the balance off in full each month.
It is all too easy to slide into credit card debt, which could give your child the burden of paying off credit card debt at the same time as student loans. Plus, it could affect his or her credit history, which could make it difficult to, say, buy a car or a home, or even to get a job. Sometimes, prospective employers check credit.
“The average household owes $7,084 in credit card debt. To reverse the trend of spending beyond our means and racking up hundreds of dollars a year in interest, it’s critical that parents teach their kids how to use credit cards responsibly (or better yet—not at all!—unless they can pay the total bill every month),” says Kobliner.
This article was written by Laura Shin and originally posted at forbes.com on October 15, 2013. Read the article in its entirety by clicking here.