According to new research from the University of Cambridge (published by the Money Advice Service, a UK organization), many money habits are set by age seven. At that stage, the study says, most children are able to “recognize the value of money” and “understand that money can be exchanged for goods, as well as what it means to earn money and what income is.” They are also capable of complex functions such as “planning ahead, delaying a decision until later and understanding that some choices are irreversible.”
Does that mean your ship has sailed if your kids are older? Not at all. The building blocks are set early on, but there’s always time to impart a few good financial lessons. Here, how to do that at every age:
Ages five to seven. At this stage, your kids should be able to understand that money is a limited resource, and that if you spend it, it’s gone. That means we all have to make choices about where and how to spend our money. And once we choose, we don’t get to choose again. How do you pass this on? An allowance is a good start — after all, it’s difficult to learn how to use money if you don’t actually have money. Give your kids an amount that increases as they age. Simultaneously, increase the list of things that they now need to pay for out of that allowance — things that used to go on your tab, like candy and some toys, can now fall on theirs. How much should you give? $1 or $2 a week is plenty at this age.
Ages seven to nine. Delayed gratification is the name of the game. If you can teach your kids to save for a goal, rather than blowing all of their money on small things here and there, it will go a long way to helping them become a financially-successful adult. Explain that saving leads to a bigger reward down the road, and make it a rule that your kids have to save a portion of every allowance. Then help them decide what they are saving for. You don’t want to delay the gratification too long, because actually getting the reward after some hard work is an integral part of the lesson. “It’s not talking to a seven-year-old about saving for the future, because for a seven-year-old, the future is next week,” says Jack Kosakowski, President of Junior Achievement. If they seem frustrated, show them how they can boost savings even further by putting away birthday money or tooth fairy gifts.
Ages nine to 11. By now, kids should be able to understand value, and you can teach them by having a dialogue when you shop together. Show them how unit pricing works (I actually remember this lesson from my mom, and the fun I had doing the math in my head to find a better deal. Kids will do anything to pass the time when they’re being dragged around the grocery store). Explain that similar products are sold under different brand names, and may be priced differently, and have them spot the sale or pick out the one that keeps more money in your pocket. And give them the job of couponing as one of their chores. They can search for coupons online, clip them from the Sunday circulars, and as a reward, you can pass on a small portion of the savings.
Ages 11 to 13. Kids are now ready to work, which research shows helps turn them into more responsible adults. When they’ve earned their money, it’s going to hold a greater value, and they’ll be more reluctant to spend it, which is a good lesson in and of itself. How can they bring in some cash? Outside of the home, babysitting, dog walking and yard work are good options for this age range. In your own home, give them a few jobs that you might otherwise pay someone else to do — they can weed or wash your car.
Ages 13 to 15. It’s time to introduce the power of plastic, because the earlier your kids learn about debit cards, credit cards, and the difference between them, the more likely they are to use them wisely. To get the job done, consider using an electronic allowance. You can open savings accounts linked to your own account (you’ll avoid fees if you maintain the minimum required balance in the main account) and transfer the allowance each month. Then give them a debit/ATM card that they can use to purchase things, and show them how to check their balance online. Finally, use your own behavior as a model: They see you swiping your credit card, but they probably don’t see you paying the bill. Take them through the process with you next time so they understand that there’s real money involved, and if you don’t pay up, the interest quickly gets expensive.
Age 15 to 18. Use college applications as a learning tool — as you and your kids weigh your options, be realistic and honest about how much you think you’ll be able to afford and how much will fall on their shoulders, which means borrowing to make up the difference. Show them how much a loan of the size they’re likely to need will cost in monthly payments after graduation, and encourage them to apply to schools in a variety of price ranges — especially those that may offer scholarships and attractive financial aid packages.
Age 18+. Now’s the time to tackle budgeting, says Kosakowski, and you can do so by sitting down and helping them write one out for the semester. Break the budget down into months and then weeks, so they know exactly how much they can be spending within a given time period. And don’t bail them out if they run into trouble — if you do, I can almost guarantee that it will happen again.