When it comes to money, kids are like kites.
A lot of attention in kite building is spent on the fabric, and frame and even the tail. But it is actually the kite string that is the most important part in making a kite fly. Without a kite string to hold the kite steady, a kite will be blown away by the wind or, more likely, never get off the ground.
Children want to be in charge of how they use their money, and they don't want Mom and Dad to "control them" with a kite string. Little do they realize the kite string is there to help them. Without it, they can suffer some hard crashes.
Here are some suggestions to use your kite string to help your children learn how to handle money.
1. Give direction on how to spend money
Use jars or envelopes labeled "Giving," "Saving," and "Spending." Money for giving should be used for charitable donations or spending on other family members (like Girl Scout cookies for Dad). Money for saving should be used for long-term goals like summer camp or a skateboard. Mom and Dad should approve what is appropriate, and when the money can be spent. Money for spending is for whatever the child wants to spend it on. It is good for kids to learn how to make money choices when they are young and make mistakes buying things they regret. It is better for them to make a dumb purchase now on small-ticket stuff than a dumb purchase later on big-ticket stuff.
2. Open savings and checking accounts
Savings accounts are always a good idea for children, especially once their savings grows beyond a few dollars. Money left at home can be misplaced. Putting money in the bank protects it from being misplaced, and kids feel grown up depositing money in the bank. Checking accounts should be considered no earlier than when a child starts working. Be sure to inform them that having a checking account requires them to review their monthly statement so they are responsible and knowledgeable about account activity. They may have to learn the hard way about fees for using out-of-network ATMs or overdrafting. Hopefully, seeing what happens when they don't manage their checking account correctly will result in better money management habits.
3. Be wary of overdraft protection or credit cards for young people
If your child is heading off to college, she or he may be tempted to opt in for overdraft protection on their checking account. Nobody likes trying to put gas in their car and have their debit card rejected because of a lack of funds. An overdraft feature would allow the debit card to work, but it will also result in a fee and a negative balance in the account that needs to be paid back. A child who does not keep track of checking account spending ("Hey, if the debit card works, I must have money!") could end up owing hundreds of dollars to the bank. Credit cards that are used for impulse spending can also get young people in trouble. Many people are not good at keeping track of how much they are spending and may find that they are not able to pay off their credit card at the end of the month. This results in interest due and if your child forgets to make a payment there are also penalties to pay. Debit cards can be used pretty much anywhere credit cards are accepted, and they won't allow users to run up a tab.
4. Train your kids to reduce identity theft
Young people are a popular target for ID thieves. Because they are inexperienced about money, they are more likely to fall victim to identity theft than more experienced adults. You need to have a "stranger danger" talk with your children to keep their personal information private. They should never give out private information on a call or email from their "bank." It's probably a scammer. Help them set up a system to use easy-to-remember unique passwords. Using the same password can give an ID theft access to private data. They should also be careful who their "friends" are on social media. You are not more popular if you have more Facebook friends. Someone you have never met should not be a social media friend; it could be someone looking to steal personal information.
In the classic comic strip Peanuts, Charlie Brown's kite was always crashing into trees. Parents can help their children from suffering from similar results with their money if they provide directions and hold onto that kite string.