Giving kids hands-on experience with money is an important component of financial literacy, studies have shown. The upshot: Practice makes perfect.
It's easier to illustrate key concepts like compounding when your child can see the interest accruing in their savings account, points out Paul Golden, a spokesman for the National Endowment for Financial Education. And letting your teen practice managing money using a checking account and debit card can teach good early lessons while the stakes are lower.
As Rachel Cruze, a financial expert and co-author of the bestselling book "Smart Money Smart Kids," recently told Grow, "If your kids are still under your roof, you still have an opportunity to raise money-smart kids. It's better for them to make mistakes with their money under your roof than in the real world."
Here's how to decide the right age for your child to get their first savings account, debit card, and credit card.
Parents can set up a custodial savings or investment account for their child right away, and doing so can be a smart way to set them up for financial success. But your child will need to be a bit older — typically, elementary-school age — before they are ready to take the reins of a savings account, Golden says.
The right time to get your child involved with a savings account is less about a specific age and more about their level of interest in money and the questions they ask about it. "As soon as your child demonstrates an interest in saving money," he says, "that's the time to take advantage."
Opening a savings account may also coincide with the child starting to have more of his or her own money to make decisions about, through an allowance or birthday and holiday gifts. That income naturally lends itself to discussions around saving habits, setting goals, and compound interest, financial expert Farnoosh Torabi told Grow.
"When your child turns 6 or 7, one idea is to have him or her decide on a savings goal, investment pick, or charitable contribution, and allocate all the year's earnings to this goal," she says.
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Think about upgrading to a checking account with a debit card once your teenager has consistent income from a part-time job and regular expenses — whether from more freedom to spend, or because you're asking them to chip in toward gas or cellphone bills.
"Then it's about helping them set a budget and talking through needs versus wants," says Golden.
Using a checking account and debit card in a responsible way can help put those ideas into practice, setting them up for financial success as an adult. "You have to talk to them and make sure they understand how to reconcile their account, understanding what they have available," he says.
As a parent, you can add your child as an authorized user on one of your credit cards as early as age 13 and they can apply for a card of their own as soon as they turn 18 — although verification requirements make it somewhat tougher to qualify until they turn 21.
But deciding at what age to let your child begin using a credit card is a "trickier" question, Golden says. "They need to have a foundation of good habits, and financial understanding, before they engage with a credit card," he says, adding that the timing "is going to be different for every parent."
Adding your child as an authorized user on one of your own cards can be a smart first step. That lets you help your child build credit, he says, while still allowing you to monitor their use of the card and offer guidance.
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Talk about account selection. Even before your child starts using a checking account or credit card, the process of picking one provides an opportunity to talk about important account features and concepts, Golden says — like what an interest rate is, and how fees can affect how much you save or owe.
Monitor activity … Keep tabs on how your child is managing money in their new account, he says. That gives you an opportunity to find teachable moments based on spending patterns and step in if there's a problem like fraud or mounting debt.
… but allow for mistakes. Real-world money experiences don't always go smoothly. Go ahead and let your child blow their savings on an impulse buy and get off track with their bigger goal, or experience the temporary pain of an overdrawn checking account. Those are valuable teaching moments, and it's better to have those early while the financial stakes are lower, Golden says: "That's the time to let them make mistakes."
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