Teaching Your Child About Money
Updated January 1, 1 . AmFam Team
Learning to save money is important for a secure financial future — and it’s never too early to start teaching your kids savvy saving habits. Follow these tips to help your kids start building a sound financial foundation, so they can get out and pursue their dreams with a money-wise mindset.
How to Teach Kids to Save Money
Get a piggy bank. Think of a piggy bank as their first savings account. It’s a simple and fun way for kids of any age to start learning about money. Tell them the goal is to fill up the piggy bank until they can’t fit any more coins in it, and when it’s full, take them to the bank to cash it in. It’s important for them to visually see how their money has grown, and you can highlight the importance of taking time to save for the future.
Separate jars. Mastered the piggy bank? Consider this method the next step up. Having a number of separate jars teaches your kids how to budget into different “accounts” — designate one jar as their “fun money” that they can spend whenever they want, one jar for short-term savings (for a toy perhaps), and one jar for long-term savings (like for a car or college).
Make a goal chart. An important motivator for saving money is having an end goal in mind. Talk with your child about what they want to save their money for, then make a goal chart that tracks their savings. This will give them an idea of how much they need to save and an estimate of how long it will take them to actually save up. And, since kids are usually visual learners, illustrating their savings goals will help encourage them to continue saving. Have fun with the chart by using stickers and small prizes as rewards for reaching a certain amount.
Obviously, different age groups will have different goals in mind. They might simply be saving for a wristband to the fair or a cool toy, but the older they get, the more you can start teaching them the importance of saving for a car, college or perhaps even bigger things like saving for a down payment on a house.
Open a bank account. Opening a bank account with your teen is a valuable way to teach them how to be responsible with their own money. Most banks allow someone as young as thirteen to open an account, with the parent as the co-owner. Go with your teen to set up the account and walk them through the process of depositing and withdrawing, and also explaining the difference between a savings and checking account.
Be sure to explain to them that every time they use their debit card, money is deducted from their account. Teach them the downsides of overdrafting, but let them make their own decision on whether to use the overdraft option. Overdrafting is usually a hefty fee, so doing it even one time can seem like a big hit to their account, which may help teach them a valuable lesson on managing their money.
And, while balancing a checkbook might seem like a dated method for your tech-savvy teen, you can teach them to easily manage their account and track their spending online.
Provide ways for them to make money. If your child isn’t old enough to have a job, find ways for them to make money at home. Whether it be a weekly allowance for completing chores, or earning a coin to put in the piggy bank at certain milestones, it’s important that they learn the value of working to earn their money. Check out our smart guide to kids and chores.
Teach good spending habits. Since kids typically learn by example, make sure that you’re making good financial choices that they can imitate. Look for deals with your children when you’re out shopping and be sure to compare prices. Use it as a teachable moment and explain why buying one item is a better financial choice than another. You can even set out your own jar next to their savings jars to visibly show them you’re saving money too. Here’s six little ways to save big money.
Teaching your children to save their money is an important step to prepare them for future financial responsibility. Using these tips will help your child better understand how learning about money at an early age will help them reach future goals of theirs later on in life.
This article is for informational purposes only and based on information that is widely available. This information does not, and is not intended to, constitute legal or financial advice. You should contact a professional for advice specific to your situation.
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Every situation is different, so it’s important to do the right research and choose the best option for you. Luckily, we’ve done some of the breakdown for you to help you decide whether to pay off your student loan entirely or buy a house.
Can Student Loans Affect Buying a House?
Typically, student loan debt doesn’t prevent you from getting a mortgage. The biggest thing to note is that student loan debt does influence your debt-to-income ratio, which is a factor lenders consider before giving you a loan. It can also affect the interest rate you pay on your mortgage.
Buying a house with defaulted student loans
If you’ve defaulted on your student loans, it’ll be more difficult — but not impossible — for you to get a mortgage. Because defaulting negatively affects your credit score, lenders will be less likely to want to give you a loan or will charge a much higher interest rate on a loan.
Getting a home loan with student loan deferment
If you’ve deferred your student loans, this usually won’t affect your chances of getting a mortgage. Just be sure to consider how the future estimated payments will factor your debt-to-income ratio. Some types of mortgages may reject applicants with deferred loans, so do your research on the different types of mortgages before shopping.
Should You Pay Off Student Loans Before Buying a House?
Buying a house is expensive, there’s no doubt about that. It can seem smart to hold off on house shopping while you still have student loan debt, and it can be even more difficult to save for a house if you’ve got a high debt-to-income ratio. But if you have enough income to handle the payments for both, you may want to consider investing in your first home.
Signs You Should Pay Off Student Loans
When considering whether to pay student loans or save for a house, there are a few factors that can help you decide if paying off your student loans should be a priority.
Your debt-to-income ratio is too high
If the amount of money you bring in monthly or yearly is almost the same as the amount of money you pay out in debts — like student and car loans or credit cards — it may be best to pay down your debt before buying a house.
You’ve defaulted on your loans
Defaulting on your loans has a severe negative impact on your credit score, which tells lenders that you’re a bigger risk to take on. Work on improving your credit score before shopping for a mortgage.
You’re struggling to make payments
If you feel like you’re living paycheck to paycheck or struggling to make payments on your loan every month, it’s best to hold off on saving for a house. Need help keeping track of your student loan payments? Try our student loan payment tracker to get organized.
You haven’t saved for a down payment or emergency fund
Before you start picking out which houses you want to tour, you should take a look at your savings. If you don’t have enough for a 5 to 10 percent down payment or enough as an emergency fund for home expenses — like a broken dishwasher or damaged roof — take more time to put money away for your first home.
