NEW YORK (MainStreet) One thing that your kids are unlikely to learn in high school? Personal finance. However, this is likely the most important skill for them to learn. High school is a liminal time when your children begin transitioning into young adulthood. What do your kids need to know about personal finance, and how do you teach it to them? We spoke to some professionals in the field to get their take on what your kids need to know about personal finance before graduation.
What You Need to Know About How to Teach
Ellie Kay, a family financial expert and author of 14 books on personal finance, has raised seven children, making her a practiced hand at teaching personal finance to kids. "Consistency is key," she says, regardless of what age child you're teaching. To this end, Kay recommends that you lead by example. She also states that you need to take a child's personality into account. "Some people are born spenders, and some are born savers," she says. "Teach to them individually and not as cookie cutters."
Remember What They Already Know
Kay states that by the time your kids are in high school they should have a rudimentary grasp of budgeting. "They should learn that the beauty of spending less than you have is that you get to keep what you don't spend," she said. You can teach this through the time-tested allowance, or by giving them a budget for a family trip, letting them keep the balance left over.
W. Henry Walker, CEO of Farmers and Merchants Bank of Long Beach has four kids of his own. He agrees with Kay that an allowance is a great way to start teaching kids about budgeting and personal finance. "It's not just about the allowance," he says, "it's a recognition of different levels of responsibility."
Banking for Beginners
It's a good idea to start kids on saving early on, says Kay, who states that by the time they reach high school they should have enough saved up to put aside $300 to $500 for a mutual fund. "It's a great way to learn about saving, but also the miracle of compound interest." By the time they're 16 or 17, Kay believes that they should have a debit card and a checking account -- one that they can balance to the penny. An additional benefit? In the age of online banking, it's easier than ever to keep track of what your kids are spending money on.
Walker agrees. "They need to know how to write a check and balance a checkbook," he says. It sounds elementary, but in the world of debit cards and online banking, it's not as obvious as it seems. "My 18-year-old called me the other day to ask how to fill out a check." He also adds that teaching kids how to use online banking and financial apps is essential. "Most kids today have access to a computer or a smartphone," he says.
Walker adds that his bank and others have debit accounts designed specifically for young people in mind. "There are no charges at all on the card," he says, adding that this safeguards the child while also giving them the opportunity to learn about how debit cards work. In addition to debit cards, Kay recommends pre-paid credit cards. "They also need to get used to having plastic in their pockets," she says. "A pre-paid credit card is great for things that you would have bought for them anyway."
The Art of Working
Kay is a proponent of kids getting work experience, even before they're old enough to hold down jobs. "I'm not going to pay my kids to make their bed," she says. "But I'd pay someone to clean my house. Why not pay my kids to do it?" She also recommends having kids take odd jobs around the neighborhood like mowing lawns or babysitting -- albeit with guidelines, rules and some degree of parental supervision.
Walker, however, is more pessimistic about the job prospects for high school kids. "There are very few manual labor jobs that a child below 16 year of age can hold," he explains.
Still, contracting out to the neighborhood or getting a part-time job after school will teach kids the value of a dollar and give them an opportunity to save for what will be the biggest purchase of their young life: a car, which Kay says they should have 1/3 to 1/2 the cost of saved by the time they're entering their junior year of high school. In addition, she believes that getting good grades is part of teaching a good work ethic, the bedrock of any financial education.
A final word about labor: Kay is a huge advocate of volunteering, a habit she believes should begin at a young age. "They should be contributing to their community in some way," she says, adding that her son went to Haiti to build houses after the earthquake while on break from the Air Force Academy, rather than visit his own family.
"It's a good habit," she says, "But I'll be honest, it also looks great on a college application." That will prepare them for the next milestone in their financial life: paying for college responsibly.
--Written by Nicholas Pell for MainStreet