To position your children for success in the future, it’s important that you give them the right financial advice. Here are the key pieces of financial advice you should impart on your children, and how old they should be for each piece of advice.
1. The Value of a Dollar
Age Range: 6 to 8 Years Old
One of the first things to teach your children about money is how it works and the value it holds. An easy way to do this is by showing them the prices of certain things when they go shopping with you, especially if it’s something they want. At this age, you can also start paying them a certain amount for doing chores around the house. Your children will then be able to compare the amount of money they make with the cost of the things they want to buy, such as toys and video games.
2. Saving Money
Age Range: 8 to 12 Years Old
When your children have some experience with money, you should teach them how to save it. Show them how they may not have enough money for that video game console right now, they will if they save their money for a few months instead of spending it. This is a good time to open your child’s first bank account.
3. How Compound Interest Works
Age Range: 12 to 15 Years Old
At this age, children are able to understand more advanced financial concepts, so you can start explaining compound interest to them. Include examples of how much they can grow their money through compound interest. After 25 years, an investment of $1,500 at 5.5-percent interest will be worth over $5,700.
Explain the other side of this concept as well – how interest on debt can quickly accumulate, which is why it’s important to avoid debt whenever possible.
4. Planning Ahead
Age Range: 15 to 18 Years Old
In the last years before adulthood, explain to your children the importance of planning ahead. The best way to do this is contribute every month to an emergency fund and retirement savings. An emergency fund will prepare them for any unforeseen expenses, such as a car repair or a temporary loss of income. By starting their retirement savings as soon as possible, your children can take advantage of compounding to have a large nest egg when it is time to retire.
David Milberg is a financial analyst from New York City.