Iowa State Bank  

Money Management for Kids

It’s critical to teach your children smart ways to handle money.  Kids will benefit from learning good money habits at a young age.  Parents need to be good role models because your children will learn from your spending and savings habits.

Grade School

  • Teach the value of dollars and coins.  Show them what each looks like and how much each is worth.
  • Show how to use money to pay for things at a store. 
  • Set up a Minor Savings Account at Iowa State Bank.  Kids will learn how to set up an account, learn about deposits, withdrawals, account balances and interest.  Kids will get a passbook for their savings account so they can watch as their account balance grows with each deposit.  They will also learn that keeping their money at a bank is safe.  Plus, kids get a free piggy bank when they open a new account. 
  • Give kids an allowance for doing extra chores.  An allowance helps children see the value of spending a little now and putting some aside to spend later.  If you provide your children with an allowance, you can start them off right by requiring them to budget and save a portion of it.  Ask your children what they would like to save their money for and encourage them to stick with it.  You might also suggest giving some to a worthy cause. 
  • Teach control when spending money.  Kids can’t have everything they want.  Know the difference between needs and wants.

High School

In high school, your teen will typically get their first summer job.  This is a great time to set up their Iowa State Bank checking account.  This will teach them:

  • How to write checks, log activity in a check register so that they don’t spend more than they have in their account, reconcile a bank statement, how to locate and fix errors, and the importance of avoiding costly overdrafts. 
  • How to use a Debit Card for deposits and withdrawals, the importance of protecting a Personal Identification Number (PIN), remembering to record debit transactions in their checkbook register and how a lost Debit Card gives thieves access to their money.  For their protection, a Debit Card for minors under the age of 18 will be issued with a $50 daily limit.
  • How to save money.  Maybe they’re saving for the latest iPod, a car or a special school trip.  Saving for these takes time.  Write down savings goals and keep them in a place where everyone can see them.  Now’s the time to talk about being disciplined to save for what they want and being realistic about their needs and wants. 
  • How to budget.  If your teenager can’t figure out where their money is going, it may be because  they need a lesson in budgeting.  First, have them write down everything they buy for two weeks.  Once they’ve figured out where the money’s going, then you can help them determine how to save.  Help them make a budget based on their income (allowance, job, gifts) and expenses (lunch, movies, iTunes downloads).  Maybe they go to one movie a month instead of two.  Or if they really want to go to two movies ask how they can earn more money so they don’t go over budget.  Show them how to prioritize and make sacrifices to prepare for the future. 

Try This - To help your child save for a large purchase, set up a 401(kids) program.  You may be familiar with the concept, the idea is based on a 401(k) matching plan that many employers offer.  Suggest matching 50% for every dollar your teenager saves.  This way their money will add up faster and you can teach lessons on earning and saving money. 

As a parent, it’s important to sit down with your teen on a monthly basis to help them with their checkbook.  This way you both can monitor where they’re spending money and verify the account is in balance.  Regular discussions about money will create healthy habits. 

A first job is also an excellent opportunity to set up an Individual Retirement Account (IRA).  This gets them thinking about what they will do for retirement.  Even though this savings goal is in the distant future, it’s important to teach kids about interest compounding and how a little saved now turns into more in the future. 

College

College is the time for young adults to start building a solid credit history in their own name.  Helping young adults develop good credit management habits will help them avoid serious consequences that can last for years.  Here are some helpful things to do and things to avoid when using credit. 

DO

  • Do understand that while in college, you have limited income.  Learn to live within your means. 
  • Do watch “extra” expenses.  Develop a budget and stick with it.  Have a limit on what you’ll spend. 
  • Do consider a pre-paid credit card or one credit card with a low minimum balance.  Shop around.  The credit card industry is very competitive, so compare interest rates, annual fees and terms and conditions. 
  • Do read the fine print.  The application is a contract, so read it thoroughly before signing. 
  • Do ask questions.  If you don’t understand something, ask. 
  • Do understand that you will be constantly bombarded with credit card offers.  Learn to say “no” to salespeople or throw them away. 
  • Do limit credit card debt.  Know that credit card debt is like taking out a loan.  Payoff the balance each month to avoid finance charges.  Determine what the real cost will be for the purchase once the interest charges are added on. 
  • Do open your bill and pay it on time every month.  This helps you avoid late fees and keeps your credit history solid.  It also protects you from identity theft and unauthorized charges.
  • Do contact your credit provider if you are having trouble making payments.  They will likely work with you to create a payment plan you can more easily manage. 
  • Do work while you are in college.  Working students are generally better at managing time and money and have an appreciation for the cost of education. 

DON’T

  • Don’t charge on a credit card more than they can payoff in one month. 
  • Don’t open many credit accounts in a short period of time.  This will lower your credit score.
  • Don’t pay your bills late.  Even if you can only pay the minimum, make sure you make your monthly payment.  Late payments will hurt your credit score. 
  • Don’t reach your credit limit. 
  • Don’t apply for more cards if you already have a balance on others. 
  • Don’t let anyone else use your credit card.  Protect your card the same as you would protect cash.  Have the card issuer’s phone number available in case your card is lost or stolen. 
  • Don’t give out your credit card number unless you’ve initiated the transaction.  Be alert to identity thieves and scams. 

A Few Things You Should Know About Credit

Borrow only what you need and what you can afford to repay.  Before you consider what kind of credit to use, you should determine whether you should use credit at all.  Ask about the Annual Percentage Rate (APR) of interest charged, if the interest rate is variable, and what fees are charged. 

Installment Loans and Lines of Credit
Installment loans:  These are loans that give you a lump sum of money up front, repayable in steady monthly payments with predetermined repayment terms, such as a fixed interest rate.  For example, car loans and mortgage loans are installment loans. 

Lines of credit:  These allow you to borrow money up to a certain amount any time you want and generally offer flexible repayment terms.  Credit cards are an example of a line of credit. 

Secured Versus Unsecured Loans
Secured credit is backed by property you own.  For example, a car loan is generally secured credit.  If you fail to pay your car loan as promised, the creditor has the right to take your car.  Secured credit is usually less expensive than unsecured credit because there is less risk.  Unsecured credit will usually cost more but will not place your personal property at risk. 

Loans are Contracts and Carry Important Responsibilities
Understand your responsibilities.  Just like with any contract, you need to understand your rights and the consequences if you fail to meet what’s required of you.  Even a few missed or late payments will adversely affect your credit history. 

If you find yourself having difficulty repaying your loans, you should act right away.  The worst mistake people make is ignoring the problem or hoping it will go away.  It won’t.  Dealing with it early is the best course of action.

Learn to identify the warning signs that you need help managing your finances:

  • Making only minimum payments month after month or skipping payments
  • Making late payments
  • Borrowing money to pay your bills
  • Frequently using cash advances from credit cards
  • Applying for new credit to payoff existing credit cards
  • Having little or no cash for your needs
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