Your kids learn a lot in school, but sometimes they need a role model to emulate – especially when it comes to important life lessons like managing finances.
“I really can’t understate how important it can be for kids to have that real-world example to learn from, to help them practice and that can teach them good habits,” Emma Graff, Senior Client Relationship Representative with First Merchants Bank (NMLS:1929486) said.
And that’s especially true when it comes to teaching your children about banking basics.
“Your kid might learn how to calculate interest or balance a check book in school,” Emma explained. “But that doesn’t teach them about what to do when they go into a bank or how to manage an account.”
So how can you teach your kids how to bank responsibly? Emma has five tips to help you get started.
Be the Bank
Teaching your child about banking doesn’t mean you have to run out and open a savings account in their name. Instead, Emma recommends you start by easing them into the concept of managing their own money.
You could start by giving your child an allowance or by letting them earn money doing small chores such as washing the dishes.
“The key here is that you will serve as the bank,” Emma explained.
In this role – especially with young children – you will help them keep track of how much money they have earned and how much they have to spend. But be sure to involve them in that process.
“The goal is to make them aware of finances and financial responsibility,” Emma explained “So that they learn where money comes from and how it’s earned – it doesn’t magically appear from mom and dad’s wallet.”
It’s an especially important lesson to learn when your child wants to purchase something for themselves.
“Have them come to you, and then you – as the bank – can give them their money if they have enough,” Emma suggested. “If they don’t, calmly explain that to them and suggest ways they could either earn the difference or encourage them to save up for the purchase.”
Invite them in
Part of being a good financial role model is letting your children see what good money management looks like, in practice – and that means inviting them into the process.
Emma suggests being open with your child about your finances, while still keeping the topic age appropriate. Let them “help” you pay bills, so they understand how much certain things cost – or show them your budget and illustrate how you built it.
“You don’t necessarily have to explain what every charge is, or what every single bill is, but just involve them in the process.” Emma explained. “You don’t have to share everything – and I wouldn’t recommend that you necessarily share if things are really tough, financially – but it’s about modeling those good behaviors so that they can learn just by observing.”
Building good savings habits
Helping your child learn to manage their own money is also a great time to help them build good savings habits. While your child is young, encourage them to save birthday and Christmas money, instead of spending it all – and explain to them the purpose of saving money.
“Make sure they know from an early age that there is a purpose for savings – and it’s to help you out down the line – so this money isn’t all for spending,” Emma said.
Teaching your children savings basics can also involve some tough love.
“If you’re acting as a bank for your kids, you also need to teach them responsible spending,” Emma shared. “You have to be willing to say, ‘No, we’re not spending money on that because it’s not a good financial decision.’ Especially if it would involve dipping into their savings.”
And teaching savings habits in this way can be an important way to involve a child who already has a savings account at your local bank.
“I’ve opened savings accounts for infants before,” Emma explained. “Opening an account for a young child can be a great way to jumpstart savings for your kids, but it’s also important to involve them in the process of managing and adding funds to that account once they’re old enough to understand.”
Bring them with you to the bank
Whether your child has their own savings account or not, you can start introducing them to how banks work early on by bringing them along with you as you complete your own transactions.
“Encourage them to ask questions,” Emma suggested. “We’re always willing to talk, teach, and do whatever we can to help them get a good start to their banking journey.”
You can even encourage your child to do “play” transactions while you complete your own business.
“I worked at a branch where a father and son would come in, and the boy wanted to do a transaction every time,” Emma recalled. “So, he’d bank with lollipops. He’d fill out a withdrawal slip for three suckers or so and present it alongside his father’s transaction – and it was a really great way I thought for a kid to learn and practice what you do at a bank.”
If your child does have a savings account, involve them in the process whenever you make a deposit to the account.
“You can let them lead the conversation – have them tell the teller what they’re there for that day,” Emma said.
“Though I do recommend you stand next to them and listen in so that your child doesn’t accidentally withdraw their entire savings account,” she added with a laugh.
Let them take the wheel
As your child grows older, you should let them take on more responsibility with their money.
“I think it’s important for parents to really take a step back when their child gets older,” Emma shared. “Of course, you should still stay on their account as a safeguard and to keep an eye on their spending; but if you have access to their account don’t make any deposits or withdrawals – let them handle that. It can be hard, as a parent, to have that distance, but if you’re not letting them take on that responsibility they won’t learn and grow and build those good fiscal habits. Teach your child financial independence – that their money belongs to them and only them, and they need to be solely responsible for it.”
There are also new discussions to be had with an older child – such as responsible debit card usage. Children are eligible for debit cards with a parent’s permission once they turn 13, and the freedom that brings can be tempting for young teens.
“I’ve found that the concept of overdraft can be difficult for new debit card users to get the hang of,” Emma shared. “I think that’s something that gets lost in communication with younger teenagers – that just because the card is working doesn’t mean the money is necessarily there.”
But that’s where your welcoming local banker comes in.
“We’re always more than happy to chat with children and teens about banking and responsible spending, budgeting, and building good financial habits,” Emma said. “We can even help you build out a strategy to help your child learn good financial skills – and we’re always eager to share a little bit more about banking and how it can help your child prosper.”