Helping Children Build A Solid Approach To Managing Their Finances

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There are many ways young adults, college-aged and younger, can learn to manage their finances, but many experts think the best way may be to learn from their parents. Whether it’s related to basic banking, debit or credit management, gaining insights from parents based on their own experiences with fiscal obstacles and pitfalls can go a long way toward starting children off on the right financial footing.

Unfortunately, many teenagers and young adults might not have the benefit of establishing that kind of foundation. A study conducted by the National Jump$tart Coalition For Personal Financial Literacy found that “a significant number of high school kids don’t have even a basic understanding of general financial concepts.” And, on the college front, students are carrying larger credit balances early on. Currently, the average undergraduate student is responsible for $2,169 in credit card debt, with the average graduate student carrying a credit balance of more than $8,000.

So the question is, where should one start with educating kids on this front?

Lessons learned

Janet Bodnar, Kiplinger Personal Finance Editor, says the key is to think like your kids and help them “learn hands-on lessons that build on one another.” As with many other things, children learn by example. So for parents, some first steps might include things like examining their own approach to money, differentiating wants from needs, and being transparent about their personal financial history, both positive and negative.

Some of the best lessons and most lasting impressions can come from parents conveying their own struggles and challenges associated with things like poor budgeting or credit management. According to the National Foundation for Credit Counseling, a parent sharing both their financial mistakes, as well as more favorable financial decisions, with their children is an important and key step in arming them with tools to make better decisions with their own finances.


Building blocks

A fair number of advisors also say that it’s best to start teenagers and young adults off with by teaching them to pay with cash or debit cards before exposing them to things like loans and credit cards, where it can be easy to spend beyond one’s means and get into trouble. Both cash and debit cards can help educate children about the discipline of spending only the money they have versus borrowing for what they want or need.

A similar approach could be to provide them with a secured card to help them start working with and building credit, but again using not money they borrow, but money they have to provide or fund on the card up front.

Next stop: Credit cards

Managing a credit card could be a next step for young adults in terms of learning to manage their finances. Leveraging references to their own credit history — good, bad or somewhere in between — parents can teach them lessons on how to manage, or how not to manage, their own card and start their credit history off on the right foot:

-          Parents can help their kids gain access to their own cards, either by co-signing on one or adding their child to their own account — A good time for getting them started on credit would fall anywhere from age 16 to 21, experts say. Once their child has access to a credit card, parents can then see how their children spend and teach them good habits from the start, again referencing their own experiences.

-          Parents should also make sure that their children’s card or the amount they are allowed to spend on the parents’ credit account has a low limit based on what they can comfortably afford to repay without their parent’s help (e.g., $500 to $1,000, depending on the age and earning capability of the child).

-          Parents then have the opportunity to establish and uphold rules for managing payments to truly create an environment that promotes consistent and timely payment behavior. Parents can also tie in real-life examples to drive home this point by illustrating things like the consequences of late payments or not paying down a balance.

These are just a few basic steps parents can take to provide an involved, engaged approach to teaching children about building a strong financial foundation and best practices for better managing their money.  For more information on this topic, visit and


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