Five Practical Ways for Parents to Show Kids the Facts of Financial Responsibility

5 Practical Ways for Parents to Show Kids the
Facts of Financial Responsibility

Financial responsibility is a difficult thing to learn, especially when many real-world opportunities don’t arrive until teens head off to college or leave home and are faced with bills of their own.

Ben Woolsey, Director of Marketing and Consumer Research for CreditCards.com, says, “It’s vital for kids to have these practical financial experiences before they have to handle these situations on their own. Parents can be instrumental in the teaching kids though everyday responsibilities.”

CreditCards.com recommends parents make time for these five skill-building experiences:

1. Buy a Family Stock: Investing is an abstract concept that may be difficult for your child to understand. To teach this idea, buy a single stock in a public company that everyone in the family knows and loves. Once children grasp the idea that if their company does well, they do well, your kids will be excited to check in and follow their gains (and losses).

2. Shop for Groceries: Taking your child to the grocery store allows them to develop a sense of what things cost. Between assembling the ingredients for pizza, sides and drinks, budgeting in tax and figuring out how to maximize nutrition for their money, your kids will get a practical lesson in both math and responsible spending.

3. Give an Allowance (and teach the 40/30/20/10 savings formula): Whether you give your kids $1 a week or $20, it’s imperative to help your kids plan where to put their money. One smart system: the 40/30/20/10 savings formula: 40% to spend, 30% toward short-term savings goals (for instance, a Smartphone for teens or a pricey Lego set for younger children) and 20% toward long-term savings goals, such as college. The last 10% goes to charity.

4. Set a Savings Goal: Children as young as 5 or 6 can imagine where they’ll be in 10 years and what might be high on their list of must-haves - perhaps a computer, a car or a college education. Help them draw a picture of one thing they think they’ll want, so when they dedicate a portion of their allowance to long-term savings, they’ll know exactly what they’re sacrificing for.

5. Give your Teen a (limited) Spending Card: While the Credit CARD Act of 2009 made it harder for people under 21 to get a credit card, it hasn’t completely kept cards off campus. It is crucial that high school students learn to handle plastic before they leave the nest. Consider loading their monthly allowances on a prepaid credit card. They’ll get the experience of swiping a card, but you won’t worry that they’ll overspend. Another option is to kids use a debit card attached to their own checking accounts. However, this option is not foolproof, and you still run the risk of over drafting and the fees that accompany it.
Ben Woolsey, Director of Marketing and Consumer Research for CreditCards.com, is available to discuss the importance of being financially prepared for an emergency and the steps to achieving it. To arrange an interview with Woolsey, please contact Christie High at 212.871.3020, ext. 114, or email chigh@jgordonassociates.com. For more information on this topic, please visit: http://www.creditcards.com/credit-card-news/8-money-experiences-your-kids-need-to-have-now-1279.php.

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About CreditCards.com:
CreditCards.com, recently named a “Best Site for Managing Your Credit” by MSN Money, is a leading online credit card marketplace, bringing consumers and credit card issuers together. At its free Web site, consumers can compare hundreds of credit card offers from America’s leading issuers and banks and apply securely, online. CreditCards.com is also a destination site for consumers wanting to learn more about credit cards. Offering advice, news, features, statistics and tools, CreditCards.com helps consumers make smart choices about credit cards. In 2010, more than 12 million unique visitors used CreditCards.com to find the right credit card to suit their needs.