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Increase your Children and Grandchildren’s Financial Independence

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 and grandparents start taking advantage of everyday teachable money moments the more independent and wise our children will grow up being. Family members are the number one influence on children’s financial behaviors, so it’s up to us to raise a generation of practical consumers, investors, savers, and givers.

Following are a few examples of lessons to be learned at each age, as well as activities to illustrate each point.

Waiting and Saving: Ages 3-5 (applicable to all ages)

money-jarThis is a hard concept for children to learn but imperative to teach very young if they are to grow up with good money habits. Being able to delay immediate gratification and to think wisely is a skill that needs to be taught young and one that will be used throughout one’s life.  If I really want it I need to save for it. Waiting and saving in the end delays the impulse need for something and the purchase will then not be made in haste and waste.

Activity: Create three jars – each labeled “Saving,” “Spending” or “Sharing.” Every time your child receives money for birthdays, the tooth fairy, holidays, chores, divide the money amongst the jars. Have him or her use the spending jar for small purchases, like candy or stickers. Money in the sharing jar can be given to charity (those in need). The saving jar can be for the item wanted and they are waiting to buy.

Activity: Next time your child or grandchild asks you for something have them set a savings goal that is attainable in a specified time period. You do not want them to get frustrated.  If your child/grandchild does have a more expensive goal, come up with a matching program to help her reach it in a reasonable timeframe. (basics for understanding later 401k matching)

In this world where immediate gratificationand in the moment are the themes, teaching patience and the value of saving for something will go a long way in helping with the future success and independence in our children and grandchildren

Making financially sound choices: Ages 6-10 (also applicable to all ages)

At this age children are capable of learning that money is finite. The concepts of once spent you no longer have it and what real value did you get by spending it are the next step in teaching good financial habits and attaining financial independence. You should keep up with activities like the saving, spending and sharing jars, and goal-setting and now begin to include your child/grandchild in more financial decision-making.

Activity: Take your child/grandchild to the grocery store and include them in some financial decisions. For instance, look at different brands of cereal and point out moneywise how to choose the one that is the best value. Look at cost per ounce and price. (Of course make sure it tastes good or else it wouldn’t turn out to be the best value in the end, uneaten)

Activity: Talk about buying things in bulk and figure out the savings (bring a calculator to make it more fun or pencil and a pad or notepad on your smartphone).

Activity: Give your child/grandchild$10 and have them come up with a list of items they can buy for it in a supermarket.Let them explain why they budgeted the way they did and how their choices got more for their buck.

Activity: When you’re shopping, talk aloud about how you’re making your financial decisions, asking questions like, “Is this something we really, really need? Or can we skip it this week? “Can I borrow it?” “Would it cost less somewhere else? Could we go to a discount store and get two of these instead of one?”

Savings and Growth: Ages 11-13

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. (Currently bank savings accounts earn very little but it is the general long term savings and growth concept that is being taught)

Activity: Have them set aside a certain amount of money each week and calculate how much that adds up to over a year, 5 years, and 10 years.Have your child/grandchild do some compound interest calculations. Two kid friendly sites to use for this are: and They can see how much their   money cangrow at a certain rate over a certain period of time.

Activity: Discuss what they spend their money on and what habit or activity they could really give up. Then calculate how much they would save in a year if they do this. At this age, children are not thinking about saving and want to buy stuff.Thinking of what long-term goals are and what they’re having to give up shows them whether or not it is a good decision to start saving. Concrete examples work best. An example is if your child/grandchild has a habit of buying a snack after school every day, she may decide she’d rather put that money away for something more concrete like an iPod or simply for future wants and/or needs. (Some adult examples: the daily Starbucks at $4/day, the impulse magazine buy at the checkout cashier, the pack of cigarettes/day, the $4 parking meter fee rather than walking an extra block or too and parking for free, the bottle of water $1.50-$3.00 instead of a refillable bottle from home). You would be surprised how by just cutting back on some of these you could go on that nice vacation, purchase that item for yourself that you thought you couldn’t ever afford, or save for the future needs.

Earning money and college cost comparisons: Ages 14-18

kid-moneyBy this age if taught right children will have a solid foundation in what it means to save and the value of money. It is time for them to put it into practice and apply their skills. Getting a part time job for a few hours a week, whether it be babysitting for the neighbor or packing at the grocery store or working in the local bakery, teaches children good work ethics and a respect for the value of the dollars they earn. They will also learn to admire what you have given them and appreciate how hard you work to support and take care of them.

Activity: Brainstorm things they like to do. Gather local papers and see what stores are around. Google local establishments and encourage your children/grandchildren to inquire about any part time opportunities. Google together minimal wage to give them an idea about how much teens are earning. Encourage them to put up signs in local establishments for things such as babysitting, lawn cutting, and dog walking.

maney-hatActivity: Discuss how much you can contribute to your child’s college education each year with your child. Be honest about what your family can afford. This helps children be realistic about where they may apply. There are many ways to finance college other than with your own money. With your child, look into which schools are generous with financial aid, research how much of it is in grants and scholarships which do not need to be paid back and how much is available in loans that your child will have to pay back. You can also look into what government programs can help pay back the loans. Search for the “net price calculator” on college websites to see how much each costs when including other expenses besides tuition. Don’t let the price tag discourage your child. Explain how much more college grads usually earn than people without college degrees, making it a worthwhile investment.

Activity: Have your child use College Scorecard to compare how much each college costs, what the employment prospects of graduates are, and how much student loan debt could affect your child’s lifestyle after graduation if he or she attended that college. As with any investment, analyze together whether the money put in will pay off in the end.

Credit Card usage: Ages 18+

visaIt is all too easy to slide into credit card debt. The average household owes around $7,000 in credit card debt racking up hundreds of dollars a year in interest.  It’s critical to teach your children and grandchildren how to use credit cards responsibly and not to incur these costs.Better of course not to use credit cards unless you treat them like cash and can pay off the balances each month (airline mileage cards or cash back cards are always a plus). If you do not have the cash available to pay off the card monthly they should only be used for emergencies and should be put away (out of sight, out of mind).Credit card debt can affect their credit history, which could make it difficult to buy a car, purchase a home, and sometimes even to get a job as some prospective employers check credit.

Activity: Together, look for a credit card that offers a low interest rate and no annual fee using sites like, or Explain that it’s important not to charge everyday items so that way if they have an emergency expense that they can’t cover with savings, they can charge that. Speak to them about building up at least three months’ worth of living expenses in emergency savings, six to nine months’ worth is ideal for those unexpected times and things that after we plan just happen in life.

Overall the bottom line is that learning to save and the value of money should start at a very young age. There are no guarantees in life and things happen. By instilling good financial sense and teaching our children and grandchildren early on the value of money we are giving them lifelong skills that they take into their adulthood and can help them to achieve financial independence.