Your Money

Five steps to turn your child into a financial whiz

Key Points
  • You could probably do a better job of teaching your child to be financially savvy.
  • Most parents are uncomfortable talking about money with their children.
  • It's important for kids to have "skin in the game."

Nicholas Prior | Getty Images

Though 83 percent of parents recently polled by Ally Financial said that saving is one of the most important financial skills for children to learn, close to 9 out of 10 parents admit that they don't talk to their kids regularly about it.

"It's surprising but believable: Parents feel uncomfortable having conversations with kids about money," said Jacqueline Howard, director of corporate citizenship at Ally.

To that end, the American Bankers Association is holding Teach Children to Save Day on Friday, April 28.

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This annual program encourages bankers to teach youngsters about the importance of saving more, plus other basics around financial literacy.

Best intentions

Ultimately, the taboo aspect of money is what deters parents from broaching the topic with their kids.

I have an eight-year-old who thinks if I use my debit card, I can pay for anything.
Jacqueline Howard
director of corporate citizenship at Ally

"You don't want to explain how much you make, how much you spend and save," said Howard.

All of that awkwardness is getting in the way of some very productive steps moms and dads could be taking with their children.

Bogus reasons you're not saving for college
Bogus reasons you're not saving for college

For instance, nearly three-quarters of the parents in the Ally survey said they encourage their kids to save, but only about half said their child has his or her own savings account.

A third of parents said it was important for their kids to learn the importance of making donations. And 56 percent believe children should learn how to steer clear of impulse purchases.

The bank polled 2,237 adults in March; 627 were parents of children under age 18.

Practical steps for you

Once you're ready to educate your child on personal finance, remember to take it slow.

"I have an 8-year-old who thinks if I use my debit card, I can pay for anything," said Howard. "There are other parents who run into that issue."

Here's where you can start.

  • Explain that funds are finite: Debit cards don't just produce a never-ending stream of cash. "All of these things come from checking or savings," said Howard. "If it's a credit card, it's money borrowed that you'll have to pay back." Children should understand that money can only be used once — and then it's gone.
  • Save with a goal: Even short-term goals can help children appreciate the value of holding onto a dollar a little longer. "How much do we want to save to buy a Mother's Day gift for grandma?" said Howard. "They can purchase items and know that the money came from the hard work of saving."
  • Spending within reason: The smallest purchases have their costs. If your child wants to buy an item, he or she needs to understand that the cash isn't limitless. "Even if you want a candy bar, a video game — that comes out of the money you set aside for spending," Howard said.
  • Opening accounts for saving: Howard recommends starting a savings account for your child once he or she is in the first grade. Money received on holidays and birthdays can be stashed here, where it benefits from accumulating interest, even if it's a small amount.
  • Learning to invest: Howard leans toward using 529 savings plans to help explain the importance of investing for the ultimate of long-term goals: college. "It's important to explain the opportunity and responsibility that come with investing," she said.

"Parents tend to set up these accounts and not tell the kids," Howard said. "They'll have no skin in the game to know that they are part of the saving as well."