.9 Essential Personal Finance Skills to Teach Your Kid

9 Essential Personal Finance Skills to Teach Your Kid Before They Move Out

By Tim Lemke

Your child is on the verge of moving out and living on their own. Are they prepared?

Arming them with the right personal finance knowledge will give them a strong foundation to go and achieve many of their life goals. If their understanding of personal finance is lacking, they could begin their independent life on the wrong foot (and they may even come back home).

Consider these ways that you can help your child build a base of financial knowledge before they move out.

1. Show Them How To Budget

Perhaps the most important personal finance skill is consistently spending less than you earn. There are a million different ways to budget, and whatever works for you may not work for your child.

But encourage them to develop a system to track and categorize spending and then compare those expenses to their income.

Of course they'll need to account for housing, food, and utilities but also let them know it's OK to include "fun money" in their budget. It will help them stay motivated to stick to their budget. (See also: How to Help Your Kid Build Their First Budget)

2. Teach Them How Retirement Plans Work

If your child is moving out, they likely have some earned income. That means they can start contributing to a Roth individual retirement account.

They may scoff at the notion of saving for retirement so early, but if you help them open a Roth IRA and demonstrate how much money they can accrue over time, they'll get on board.

Urge them to save as much as they can each month, invest in simple things like index funds, and simply watch their account balance grow over time through compounding.

If they have a 401(k) plan through an employer, take time to review the plan document with them and encourage them to contribute as much as they can. Be sure to explain the advantages of getting a company match on contributions, if one is offered.

3. Explain Bank Interest Rates

Chances are, your child already has a savings account. But it's still helpful to explain that they don't necessarily need to put their money in the first bank they see.

Show them how interest rates can vary, and that it's OK to shop around for the best rates so they can earn a little extra money. Explain terms like APR and APY, and the factors that impact whether rates go up or down.

Also outline the pros and cons of placing money in certificates of deposit. These days, it's also helpful to explain that while interest rates are rising, they're still quite low, and that it might make sense to invest some funds in ways that generate a higher return than savings account interest.

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