Age 3 to 5 Years

• You need money to buy things.
• You earn money by working.
• There’s a difference between the things you want and the things you need.
• You may have to wait before you can buy something.
  
  

A terrific idea is to label three jars, “Spending”, “Sharing” and “Savings”. Every time your child receives money divide it equally between the jars. The spending jar is for small purchases such as a cookie or colored markers. The money in the sharing jar can go to a favorite cause or a friend/neighbor in need. Lastly, if your child has a goal of buying a more expensive item, they may have to build up the savings jar to be able to purchase it. This teaches goal setting and patience.

Counting the money together as new contributions are made teaches about the value of each coin and paper dollar and also helps set expectations as to when they will reach their goal.

Ages 6 to 10 Years

• It’s good to shop around and compare prices before you buy.
• It can be dangerous to share information online.
• Putting your money in a savings account will protect it and pay interest.
• You need to make choices about how to spend your money.

We all make choices every time we shop… is it the store brand crushed tomatoes or the name brand which is $.20 more? Is it a new dress in a department store or are you going to shop at your favorite consignment store? Is it a new car or a used car?

As you shop with your child, discuss how and why you are making your decisions. “Do we need this now, or can we wait six months”? “Can we find this to be less expensive elsewhere”? It provides then with an understanding that there are tradeoffs and options.

Ages 11 to 13 Years

• You should save at least a dime for every dollar you receive.
• Entering a credit card number is risky because someone could steal your information.
• A credit card is a type of loan; if you don’t pay the bill in full every month, you’ll be charged interest and owe more than you originally spent.
• The earlier you start to save, the faster you’ll benefit from compound interest which means your money earns interest on your interest.

Explain the rule of 72, that is divide the annual rate that you are earning, say 8%, into 72. In this example it will take 9 years for the money to double. And if you continue to earn 8%, the funds will double again in 9 years. This is a wonderful l principle to understand when saving through a tax-deferred account like an IRA . The longer the time period before you use the funds, the greater number of times you funds can double! I really encourage people to start saving in an IRA as soon as they start earning money.

Ages 14 to 18 Years

• It’s important to know what a college will cost before choosing it.
• You should avoid using credit cards to buy things you can’t afford to pay for with cash.
• Your first paycheck may seem smaller than expected since money is taken out for taxes.
• A great place to save and invest money you earn is in a Roth IRA.

A Roth IRA does not provide a tax-deduction like a traditional IRA but the deduction is not of benefit to most young wage earners anyway. A Roth IRA has a big advantage in that it allows their savings to compound tax-free for life!

Milestones for 18+ Years

• Putting all of your eggs in one basket can be a risky way to invest; consider a diverse mix of stocks, bonds and cash.
• Always consider two factors before investing: the risks and the annual expenses.
• You need health insurance.
• You should use a credit card only if you can pay off the money owed in full each month.

Just as money compounds in a savings account, interest owed on a credit card compounds over time. If you are paying the minimum owed, you can take a very long time to bring the balance to zero. So go ahead and use your card to accumulate air miles or points but only purchase what you can afford to pay off each month.

One last point, with today’s low interest rates you are earning less than 1% in a savings account. Why would you agree to pay 15% or more to borrow from your bank on a credit card?

Roxanne E. Fleszar, CFP, ChFC is President of Financial Resources Management Corp, a registered investment advisory firm with offices in Key West, Boston and Naples.