STILLWATER — Learning to manage money is as crucial as reading or writing, and the sooner kids begin to build their financial literacy chops, the better.
“Being able to make good financial decisions can have a huge impact on your life,” said Eileen St. Pierre, Oklahoma State University Cooperative Extension personal finance specialist. “That’s why it’s so important to start teaching smart money practices when kids are young.”
This message is especially timely as April is both National Savings Month and Financial Literacy Month.
St. Pierre said two ways parents can help kids understand money are to talk about it and model good financial behavior.
“Talk to kids about spending and saving decisions that come up each day,” she said. “Do your kids see you saving for large purchases, waiting for items to go on sale, clipping coupons or comparison shopping? Grocery stores and malls make excellent real world labs for demonstrating some of these behaviors.”
Parents can start with little ones as young as age 2 teaching them basic concepts such as how money is used to purchase items, how money is earned through work and the difference between wants and needs.
As children begin to grasp the concepts of money and finances, parents may consider awarding an allowance. How much may depend on how kids are expected to use the funds and what other kids in the neighborhood receive.
“Kids’ financial responsibilities should grow with them,” St. Pierre said. “At first, your kids may use their allowance to buy small trinkets or treats, but as they mature into better money managers, that can be expanded to include paying for bigger items such as video games or tennis shoes, or going to the movies.”
Rather than awarding allowance for everyday chores like washing the dishes, allow kids to earn funds for bigger tasks such as cleaning out the garage or cutting the grass. And, no matter how the funds are spent, parents should resist advancing or loaning money if kids run out of funds.
In order to teach kids that saving is just as important as spending wisely, St. Pierre suggested setting up a four-bank system or a 401(kids) account. The four-bank system is an easy way to illustrate four uses for money — spending, saving, investing and donating, while the 401(kids) account works like employee benefit programs that match a certain amount for every dollar a worker saves.
“You can even take the four-bank system a step further by insisting a portion of any money your kids receive goes into each of the four areas,” she said. “As for the 401(kids) account, this is a great way to encourage the habit of saving and has an added advantage of helping their balance grow more quickly.”
For more information about helping kids become financially literate or for general financial education classes, contact the local Extension office at 918-534-2216.