The Importance of Financial Literacy for Kids
It’s never too early to teach your kids about money, but you may not know where to start. If they’re in their teens, a great way to kick their financial education up a notch is to help them open a checking account. This opens the door to lots of other important ways they can expand their understanding of money.
#1 Understanding Income: Teaching Kids Where Money Comes From
As adults, we sometimes forget that the idea of income might feel foreign to kids. After all, they’re focused on grades, sports, their friends and high scores on their latest video game. They’re not caught up in how much groceries or gas cost. But teaching kids about money helps shape the way they see the world.
Sources of Income
A surefire way to educate your kids about income is to get them a worker’s permit for a summer or part-time job. If they’re not ready for a job, that’s okay. They could earn money through an allowance or by finishing chores. Encourage them to think about that money as their income rather than a source of instant gratification. When they get their income, show them how to deposit it either at a banking center or through a banking app, then talk to them about the importance of saving for the future.
Planning for Income Variability
While you’re talking about income with your kids, think about discussing your own income with them. You don’t have to go over your exact salary or your retirement contributions, but you could explain that income and expenses fluctuate, so it’s important to adjust your budget and save for the unexpected.
This is a good lesson on financial literacy for kids and adults, too. First on our list of all things adults should know about their finances: Your monthly net income. Consider reading our article on adult finances alongside your kids to model responsible financial habits. Plus, it’s a way to turn money into a family-friendly conversation topic (rather than a taboo subject).
#2 Expenses: Teaching Kids About Monthly Commitments
Teaching kids about income usually turns into a lesson about monthly expenses. Budgeting is part of everyday life – but it doesn’t have to be scary. Come up with a kids’ budget and show them that they can plan for small, fun activities with you.
Let’s say that you get ice cream with your kids every Saturday. Set aside some money and spend it on that week’s treat. Then, look at the balance in your kids’ checking account, comparing the cost of the treat to their balance. Tell them that, yes, ice cream costs money, but you can budget for it and still have money left over.
If you have an older kid, have the same talk about expenses, just with a cell phone bill. Ask your kid to pay all of the bill, half of the bill, part of the bill – whatever seems fair and comfortable. The goal is for your kid to feel like they’re empowered to handle any expense that arises.
Differentiating Needs and Wants
Ice cream is a want. Paying a cell phone bill is a need. Distinguishing between the two is a good segue into discussing how to pay for needs first and save for wants later. You don’t have to make it seem like they have to deny their wants indefinitely. Emphasize that it’s best to spend and save in moderation.
Tracking Monthly Expenses
Give your kids the option of tracking money however they like. Maybe they like online banking. If so, set up an account for them so they can check their balance on their phones. Teach them to transfer money, set up alerts and report unusual activity. Start small. The goal here is for them to feel comfortable managing their own money. That way, they’re well-prepared by the time they leave home and have to pay for their own bills.
Another idea: Your kids can sync their accounts with budgeting apps that help them set goals and see what they’re spending on. And if they’re more comfortable with a back-to-basics budgeting model, use the old envelope system. Label a series of envelopes for different purposes (“Ice Cream Outings,” “Cell Phone Bill,” and so on) and divide your income into the envelopes. Once an envelope is out of money, you know you’ve hit your limit in that category for that month.
#3 Future Goals: Budgeting for Long-Term Needs and Desires
All of these lessons about income and expenses are intended to help your kids think long-term. What are the things they’ll need and want in the future? Help them figure this out by picking out the best checking account for their goals.
Setting Short-Term and Long-Term Savings Goals
Go back to that kids budget that you set up when you were teaching them about monthly expenses. Add another column to it: “Long-term expenses.” For younger kids, a long-term expense might be a bicycle. For teens, it might be car insurance.
Encouraging Consistency in Savings for Kids
One way to reinforce the habit of saving is to open a money market account, a certificate of deposit or a Roth IRA. Whatever investment vehicle you choose, help them put money into that fund. Show them how it goes up over time. And explain that it will eventually grow to the point where the money makes its own money. That’s the goal: Put in the effort now when they’re young and watch it compound when they’re older.
Starting the Financial Journey with First Horizon
There’s a saying that goes, “The best time to plant an oak tree is twenty years ago. The second best time is now.” Financial journeys last a lifetime, but it’s best to get started as soon as possible. Educating your kids about income, expenses and future goals can help them handle money with maturity as they grow older. And it all starts with the right checking account – and the right bank.
At First Horizon, we combine big bank resources like apps and online banking, with the personal attention that only a small bank can provide. And we do it so families like yours can access the capital and counsel they need when it matters most. Check out our checking accounts today – and set your kids up for success the rest of their lives.
