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What to Teach Your Kids About Money

  • Oppenheimer & Co. Inc.
  • December 11, 2019

A punch list for instilling personal finance “street smarts” in your children

As parents, what should we be teaching our kids about money? What could I have learned as a kid that would have better prepared me for the future? Every kid, from pre-teens to teens, should know these basic financial principles – the younger, the better.

teaching children

Punch List

We all know how important it is to create a budget, even though it can be a daunting, tedious task. Fortunately, kids don’t have too many expenses to keep track of. The first lesson to teach them is the most important one: save as much as you can, as early and as often as you can.

Clothes, sneakers, video games, makeup and jewelry are items that most kids spend their money on. While it’s fun to get the latest toy or clothes, it’s important to remind our kids that newer or bigger isn’t always better. However, with the proper discipline and mindset, they can save up for those items they can’t live without. As soon as they get their working papers, kids must learn to “pay yourself first” by socking away 10% of their paychecks right off the top.

Also remind your kids that their number one job is to go to school and get an education. Odds are that whatever after-school, weekend or summer jobs they have are only temporary. That income may stop as quickly as it started.

Building on the philosophy of saving early and often, children should understand how to invest in the financial markets. Savings accounts and money market accounts are useful because they come with easy access to cash in case of an emergency. These accounts carry virtually no risk but they earn very little interest on your money. If your son or daughter is thinking about the future (beyond five years), and is comfortable with risk, a custodial brokerage account, Uniform Transfers to Minors Act (UTMA) or Uniform Gift to Minors Act (UGMA), for example, may make sense.

As kids get older and closer to 18 years of age, they’ll be tempted to sign up for credit cards. Unfortunately, that will likely continue well into their adult lives. Credit cards are not necessarily a bad thing, as long as you pay back what you owe in a timely and consistent fashion. The credit limits are usually low – about $500 to $1,000. But the interest rates can be incredibly high, anywhere from a “low” rate of 7% to the beginning (to entice you to sign up for the card) to a high rate of 27% (sometimes as soon as a few months later). If you can properly manage your debt and pay your bills on time, then a credit card can be effective way to build your financial profile for the future.

“As we mature from kids to adults, we don’t outgrow toys.
The toys just get bigger and more expensive”

Growing up, we never thought about how much it costs our parents to live in our house or how much insurance coverage they needed in case of a crisis. In fact, we didn’t really learn basic financial terms such as mortgages, insurance or retirement until we were already out of college and in the work force. It’s crucial to understand what these concepts actually mean, when you expect them to occur, and why they’re important.

Of course managing money is never easy. Whether you’re six years old or 40, or a few years into retirement, we all need help balancing our budgets, managing our investments, and, more importantly, reaching our goals!

Have you had this conversation with your children yet? How does your process and approach measure up? Which areas does your family need help with? Oppenheimer Financial Advisors are here to help you prepare and teach your children about personal finance.

Speak to an Oppenheimer Financial Advisor today to get your children ready.


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