Why is it important to start teaching kids about financial matters when they are young?

According to family financial experts at CNN.com, it is important to introduce children to basic financial concepts because, as they get older, they will more likely have created many habits related to spending, and will not have the time to learn about basic financial matters once they become teenagers.

What are four concepts that will help older kids increase their financial literacy?

Experts at Kiplinger's distill four important concepts that older kids need to understand in order to increase their financial literacy: Even small amounts of money when saved in a bank account earning only 2% interest will continually grow, because of compounding interest; when you obtain a 30-year loan to buy a house, you may have to pay less each month for principal and interest payments, while a 15-year loan will require higher monthly payments, but you pay less in interest; there is generally more risk associated with buying an individual stock than in buying a mutual fund, because the fund may be properly diversified; and when interest rates increase, bond prices decrease, because newer bonds may be issued with higher rates and will be more attractive to investors.

Why is it important to use allowances to teach older kids proper financial management?

Family financial experts atCNN.com suggest parents use an allowance—whether for work completed around the house or not—as a tool to teach older children the value of money because it will help prepare them for when they begin to work and earn much more money. As they get older, they will be better prepared for such necessary financial activities as opening a checking and/or savings account, and using credit or debit cards wisely.

How do parents use allowances for their children?

In a recent national survey of 2,000 families, experts at the site DoughMain.com, an organization committed to encouraging parents to teach their kids about money matters, found that 89% of all families assign chores for their kids to do, and 51% of all families give an allowance, but only 21% give an allowance as compensation for chores. They also found that only 21% of the families that pay an allowance actually pay it in recognition for the completed task. Forty-seven percent of all families stated they pay the allowance in order to teach their children about financial matters, but not in connection to the completion of chores. The study further found that 26% of parents now give privileges such as computer or television access instead of a monetary allowance. And only 4% of parents require their children to deposit saved money into a bank account.

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