Children's Banking and Investing for Money Education

It is never too late to teach money and financial basics to kids, no matter their age. Children's banking and investing for money education should be at the top of every parent's list. As a matter of fact, most money experts say you'll be late instating regardless of how young your children may be.

The economy may be unpredictable or money might be in short supply for a family due to illness, a layoff, divorce or other changes that affect finances. One financial advisor recently told CNBC that not talking to our kids about money is perhaps one of the biggest mistakes any family could make.

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The reason to start teaching kids early about money is that financial habits - bad or good - are developed early in life. No matter how old your kids are start talking to them about money today. Teach them good habits when it comes to money. For example, if your kids are younger, let them take the change from the clerk at a store, allowing the clerk to count the change to your child.

For older children, an allowance is a great way to teach them about the value and power of money, especially if they have to do chores to earn more money. Teach good, sound money basics now and your children will be less likely to make bad money decisions that could have negative effects that might stay with them throughout their lives.

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When it comes to knowing about money, don't we all want our own children to know more about it than we did? Wouldn't it be better if they knew how to save more money, create a budget, learn about investing and stay out of debt? There are really not that many things to know about handling money, investing or finances if you follow a few simple, basic rules.

Of course, it's a good idea to tailor this learning to suit the age of your child. Whatever their age, making it fun and simple to learn about money is essential to starting them on a path to financial security.

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It seems that most every kid I have ever known (including my own children) are born with this desire to want whatever they see. Kids don't think about what things cost or that you may not have enough to make the mortgage payment if you buy something. They simply know what they want and they will do just about anything to get it.

Your job as a parent is to teach your kids the difference between a what and a desire. For example, wants are things that people desire but are not necessary. Needs are essential things that people cannot live without. I know it sounds so basic, but kids will not understand this unless it is taught to them. Teach your kids this lesson early: simply, wants come after needs are paid for.

Another important aspect of this "wants and needs" education is learning to prioritize the things that fall into the category of "wants." Teach children to learn the difference between needs and wants by making a simple list. Write down both needs and wants and place a ranking on the things they want by placing those items on a list below the needs. From this list, kids will soon discover what they can afford and cut the "wants" from the bottom of their list.

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Kids need to know just how far money will go and how to stretch a dollar if necessary. Sometimes that means taking a less expensive vacation or cutting out coupons from the Sunday paper before heading off to the grocery store. Learning to shop smart is the best thing you can teach your kids about money. The best way to teach them is by example. Involve your kids in clipping coupons or shopping for better travel deals. Show them that a bit of money saved here and there can really add up.

Take your kids to the store when you shop, give them a calculator and let them figure out which items are the best buy for the money and how money saved here can be spent to get other things. Some children, especially younger children, have no clue about the value of money. They can't tell the difference between a $2 (USD) package of ground beef and a $5 (USD) package of steaks. What they can see is how you plan purchases and make a limited amount of money stretch to feed the family.

Here's an example of how we taught our young children about the value and spending power of money. We got them to help us cut out coupons from the paper or from mailed circulars. We then took the kids and the coupons to the grocery store and showed them that if we save $15 (USD) in the store, we can out that toward going on a special vacation to Disney World. We would then put that money in a jar labeled "Disney World Vacation." Our kids realized what was going on fairly quickly, each trip to the store became an adventure to see how much money could be saved and placed in the jar to be used toward the upcoming vacation.

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I wish I had learned more about credit as a child. My father was one of the first people in our city to be issued a credit card when they first came out back in the early 1960s. It was an unmitigated disaster and something our family would pay for over the following 18 years. Teach your kids what my folks should have taught me - credit cards are NOT free money.

Help your kids get their first credit card and teach them how to use it wisely. Teach them how to make a budget - what they can afford to spend and pay on a credit card each month. Most importantly, have them set a date for when the card will be paid off and stick to that date. Get a joint account that allows them to have a card with their name on it and monitor their spending habits. Step in when necessary to offer advice but let them make their own decisions knowing the consequences of their credit spending. If they overspend and you pay it off, they will not learn the lesson.

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One of the best things we did for our newborn kids was to purchase a substantial insurance policy in each of their names that could be transferred to them on their 18th birthday. We wanted something that could be passed on to them to be used for education, purchasing a home or as a part of their retirement.

The key to this financial instrument was a guaranteed rate of interest compounded over a long period of time. When my kids were old enough to understand, we explained the details of these policies and showed them how much compound interest had accrued over the life of the policy. We also showed them how much the policies had increased in value.

The lesson here is prove to your kids that their money will grow just by being in the bank, or other financial instrument like a simple savings account, interest-bearing checking account, money market account, savings bonds, etc. The thing you want your child to learn is that it's good to make money work for you. There are many online banks that offer a decent interest rate for most of their accounts. Check with your accountant, the individual financial institution or a financial advisor for more details.

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If you have instilled the aforementioned basic money principles into your kids, then they are ready for this last tip. Investing is simply learning to use money as a tool. I think it is mistake to think any child is too young to begin investing. If they have an interest in learning more about how to make money investing, then teach them. I wish my parents would have taught me more about investing when I was a child. In 1961, when I was old enough to start figuring out the value of money, gold was a mere $35 (USD and ounce. Have you checked the current price for an ounce of gold today?

The point is to teach kids about investing as early as possible. No, I'm not talking about risky or short-term stock market investing. How many of us learned our lesson the hard way through one of the many stock market "fluctuations"in recent years? Every financial advisor or broker will tell you that stocks are an investment for the long-term. As a matter of fact, the stock market has yielded an average 10% rate of return over the life of the market.

Teach your kids about investing and the stock market by opening a brokerage account for them. Go online and check out the kid's accounts available from Schwab, E-Trade or AmeriTrade. There are basically two types of accounts available to kids - custodial and guardian accounts. Each has it's own rules, features and limitations so be sure and read the fine print carefully. These firms all have user-friendly online tools to help you and your child invest and manage their money If you need help, get in touch with a local investment broker or accountant before investing any money.

A final word about kids and investing: An online brokerage account opened for your child will also provide full access so you can step in and take action if needed. I would advise you let your kids make some mistakes in their investing - this is the best way to learn. Don't bail them out if they lose money, just be available to advise and help them through these challenges. One day, your kids will be making these investment decision on their own - teach them well.

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