Putting kids on the road to financial independence Tips and tactics for every age

60%of teens consider learning about money management one of their top priorities, according to a Schwab survey.

While the median household

income in the U.S. is

$48,000, today’s teens

believe they’ll be earning

$145,500.

The average outstanding

balance on undergraduates’

credit cards is

$3,173.Statistics show there’s a need to help kids

learn about money. But you don’t have to be a

financial whiz to get started. The lessons of your

own life—your values and what shaped your

personal approach to finances—can be a great

foundation for helping a young person make good

financial decisions.

Today’s financial world may be a bit more

challenging than when you were growing up. But

with a little planning, you and the young person in

your life can explore ideas, share goals and

celebrate the achievement of milestones on the

road to financial independence.

$23K is the average student

loan debt for today’s

college grads.

See back page for data sources.

1

Rules of the RoadFor many families, talking about money can be uncomfortable at best. Need a hand getting started? Here are some guidelines to make teaching money skills easy for you and rewarding for everyone in your family:

Jump-Start the Savings Habit . . . . . . . . . . .2

Giving—It’s a Family Affair . . . . . . . . . . . . .3

Smart Spending—Now and Later. . . . . . . .4

Be a Hands-On Credit and Investing Coach . . . . . . . . . . . . . . . . . .6

Real-Life Experiences to Share and Celebrate . . . . . . . . . . . . . . . .8

•Makemoneyconversationsapartofeverydaylife. On a trip to the store or while planning a family vacation, talk about how you budget and save.

•Setagoodexample.Friends and the media have a lot of influence on kids, but when it comes right down to it, what your children see you do is probably the most important influence of all.

•Useage-appropriateactivities.Consider your child’s personality. No two kids are exactly alike—nor are their approaches to money.

•Talktogirlsandboysinthesameway.They need to learn the same lessons about spending, saving, borrowing and investing.

•Trytobeopenaboutfamilyfinances.Find areas where you’d be comfortable involving kids in family financial decisions.

Now read on for ideas and activities to make learning about money fun and engaging for the kids in your life—and for you, too!

2

Jump-Start the Savings HabitEven the youngest kids can understand the idea of setting goals and saving to reach them. And they’ll enjoy seeing their money add up. Plus, the earlier kids start developing good habits, the more likely they are to achieve financial independence later on.

Going for a goalWhat do your kids want from their money—a video game, a car, a special trip? What about college? Saving for a goal is a good way to instill the savings habit. Have your kids:

•   Write down both a short- and a long-term goal, and attach a price to each.

•   Set aside at least 10% of their allowance, gifts and other income toward their goals, and figure out how long it will take to reach them.

Putting time on their sideWhen it comes to saving, time is every kid’s greatest asset. The sooner they start, the longer they have to save and the more money they’ll end up with. To make this real, talk about how they

can earn interest on their savings. Particularly for younger kids, the idea of earning even a few pennies in interest can be very motivating.

Once they’ve accumulated some savings, help them open a savings account and watch their money—and interest—add up!

How long will it take to reach a savings goal? Use the Savings Calculator on SchwabMoneyWise.com under Calculators & Tools to find out.

3

Giving—It’s a Family AffairLearning to save and learning to give go hand in hand. You can make philanthropy a family focus by doing these things together:

• Volunteer as a family. It will help kids appreciate what they have—and realize how they can make a difference.

• Let kids research and choose an organization to support.

• Match your kids’ donations dollar for dollar to show your support.

• Make donations as a family to a favorite cause or charity.

Savings Activities

YOUNGKIDS:Decorate separate jars for each savings goal. Create

a bulletin board to track progress. Get everyone involved and turn it into a family competition.

MIDDLESCHOOLERS:Help your child open a savings account. Shop for an account with no fees. (Your own bank may be willing to negotiate.) Don’t forget to bring your child’s Social Security number. Ask the manager for a tour and a demonstration of online banking.

TEENS:For teens who work, help them set up Direct Deposit to put

part of every paycheck into a savings account.

ALLKIDS:As an incentive, consider matching your children’s savings

(say, 25 cents or 50 cents on the dollar). Or offer bonuses if they reach their goals. It shows you’re behind their efforts.

4

Smart Spending—Now and LaterA recent Schwab survey showed that nearly all parents (93%) worry that their kids might make financial missteps, such as taking on too much debt or living beyond their means. To help your kids avoid these common mistakes, teach them early on how planning can help them take charge—not only of their money but also of their future.

Making money decisionsKids need to have money of their own to touch and experience before they can really learn to value it. Giving them an allowance is a good first step. As your kids get older, they’ll have other ways to earn money, like a part-time job. 

Whatever the source, the important thing is to let kids make their own spending decisions—and their own mistakes—while the stakes are low.

Spending Activities for Younger Kids

Help a preschooler begin to understand

the value of money by giving her a dollar to buy a nutritious snack. Let her pay for the snack herself, get a receipt and keep the change. Encourage her to put the coins in her piggy bank.

Turn a grocery-shopping trip into a 

bargain-hunting game. Example: Can your child find a box of cereal for $3?

Comparison shop. Have your kids find

the most expensive and the least expensive juice. Why does one cost more?

The basics of budgetingTo introduce the concept of budgeting, have kids track their spending by writing down every purchase for a week or two. This will show them where their money is going. Then take it a step further by having them:

• Add up their income (from allowance,  gifts or a job).

• Write down all their expenses, including savings.

• Do the math. 

If they come up short, talk through the budget and discuss where they can make adjustments and trade-offs.

5

Ever wonderwhere all yourmoney goes?Our online Monthly Budget Planner can help you and your kids stay on top of expenses.

Doctor, Vision, DentalGrooming (hair, nails, etc.)

Gym/Health ClubOther

Tuition & FeesTextbooks & Supplies

Other

GiftsCharitable Donations

Other

0000

000

000

Health &Grooming

Education

AdditionalExpenses

Go to SchwabMoneyWise.com and click on Calculators & Tools.

Budgeting Activity for Older Kids

Make budgeting fun by letting kids plan a trip or an outing. 

Give them a budget—$1,000 for a family vacation or $50 for a 

special family night out, for example.

Have them research and estimate expenses for transportation,

lodging, meals and activities.

Help them be creative and make trade-offs to stay within budget. 

For example, if dinner and a movie exceed the budget, help the kids find a free event in the local newspaper.

6

Be a Hands-On Credit and Investing CoachAs the kids in your life get to the age when they’re handling larger amounts of money, talk to them about the importance of managing debt and investing for the future. Both discussions offer a great opportunity to reinforce the ideas of goal setting, saving, budgeting and more.

The nuts and bolts of borrowingLearning how to use a credit card while still living at home may help teens avoid the pitfalls of credit card debt that so many college kids fall into. To help your teen handle credit wisely, be sure to:

• Explain that credit cards are useful as long as you can pay off what you charge each month.

• Discuss how interest and late fees add up if you don’t pay off the balance.

• Explain that credit cards are best used with discretion—not for day-to-day purchases  under $10.

Don’t forget about credit scores. Teens need to understand early on that a credit score can follow them through life—and affect their ability to get a loan, an apartment or even a job.

SchwabMoneyWise.com is filled with interactive tools to make learning money skills interesting and fun.

We want to hear your ideas, too. Go to SchwabMoneyWise.com to share your insights.

Credit Card Activities

First open a checking account. Teach your teen how to use a check register and review monthly statements. Be sure he or she knows how to pay bills before using a credit card.

Start with a co-signed card. Set a limit of $500 or less, and set some ground rules for how and when to use the card.

Pay off the monthly balance. Review the monthly statement and have your teen pay the bill from his or her own checking account.

7

Investing 101The best way to introduce kids to investing is to speak their language. Keep it simple. Start by explaining that investing is a means of using your money to try to create more money. Then talk about:

• Long-term investing—A longer time horizon helps you weather any market’s natural ups and downs.

• The power of compound growth—Compounding can have a snowball effect as your original investments and the earnings on those investments grow together over time. The earlier you start investing, the greater the impact compounding will have.

• Risk and reward—Stocks, bonds and mutual funds are generally more risky than a savings account, but they can also provide the potential for a higher return.

• Diversification—It’s risky to put all your eggs in one basket. You can minimize risk by spreading investments across stocks, bonds and cash equivalents, as well as across sectors, industries and companies of all sizes.

Investing Activities

AGES10&UP: Try virtual investing. Demonstrate how to research stocks online, and then have them “buy” 10 shares of a few companies they like. Record the “purchase” price, monitor the performance and, after a month, have them calculate what they gained or lost.

TEENS:Open a custodial account (or a custodial Roth IRA if your teen has earned income) and let them help select appropriate investments. Have quarterly check-ins to review how well the investments have performed.

YOUNGADULTS:As young adults move into the workforce, encourage them

to contribute to their company-sponsored 401(k) at least to a level that earns the company match, or encourage them to open a Roth IRA as soon as they start working. This can give them a terrific head start on retirement savings.

Mary earns more than five times as much as Sue, who starts 10 years later. Note: Example assumes a consistent annual rate of return of 8% compounded monthly. Inflation, taxes and expenses are not factored in.

The value of investing early:How two sisters compare$250,000

$200,000

$150,000

$100,000

$50,000

$0

$141,179

Invests $400per month for

20 years

Invests $400per month for

10 years

$25,666

$48,000

$96,000

Total earnings

Total monthlycontributions

Sue

Mary

8

Real-Life Experiences to Share and CelebrateAs your kids reach developmental milestones, you can help them take big steps toward financial independence. Sharing and celebrating these real-life experiences provides you with an opportunity to teach important financial lessons—and gives your kids an opportunity to take pride in their accomplishments.

5 10

Ages 5–8 Starting an allowance

An allowance is the first step toward gaining practical experience with money. Be sure to:

• Be clear about associated chores and what you expect your child to pay for.

• Avoid giving extra money just because they ask for it. Let your kids learn to manage.

• As kids get older, switch from a weekly allowance to a monthly one so they can learn to budget over a longer period of time.

Ages 10–12 First big purchase

Whether your child wants a laptop or a bike, this is a great opportunity to learn about making choices. You can help:

• Establish a time frame and savings plan for making the purchase.

• Track daily spending to identify opportunities to save.

• Encourage comparison shopping.

9

15 20

Ages 18+ Going to college

Working out certain details can help make this important transition easier:

• Be clear about what you expect your student to pay for and help set up a monthly budget.

• Open savings and checking accounts. If your student doesn’t already have a credit card, help shop for the one with the best terms.

• If your student is considering loans, help evaluate the rates and terms.

Ages 15+ Buying a car

For teens, a car is often one of the most important savings goals. Help your teen:

• Calculate how much he or she can afford.

• Remember recurring costs such as insurance, gas and maintenance.

• Factor these costs into a monthly budget.

Ages 20+ Leaving the nest

Learning to be independent is one of the most important rites of passage. Before your young adult leaves home, share this checklist:

• If your kids don’t already have them, open key financial accounts—checking, savings, credit card, and an IRA or other investment account.

• Make a budget including essentials like rent, utilities, clothing, food, transportation and insurance, plus discretionary items like entertainment.

• Secure health, auto and renter’s insurance.

• Pay debts such as student loans and credit cards on time. Always pay off the monthly balance on credit cards—or at least more than the minimum.

• Start saving enough to cover three months’ living expenses as an emergency fund.

• Continue or begin to save for other goals.

The information provided herein is for general informational purposes only. The types of savings and investment strategies mentioned may not be suitable for everyone.

Brokerage Products: Not FDIC-Insured • No Bank Guarantee • May Lose Value

Sources for data appearing on the inside front cover, clockwise from top: Charles Schwab Teens and Money Survey, 2007; National Project on Student Debt, 2008; Charles Schwab Teens and Money Survey, 2007, and U.S. Census Bureau median household income data, 2006; Sallie Mae National Study of Usage Rates and Trends, 2009.

Diversification strategies do not assure a profit and do not protect against losses in declining markets.

 Printed on 50% post-consumer recycled paper. Schwab is committed to making responsible choices for our environment.

©2009 Charles Schwab & Co., Inc.  All rights reserved.  Member SIPC.  DTS 08859 (0308-5248)  MKT40748-01 (10/09) 

A message from Carrie Schwab-Pomerantz

Working together to improve financial literacy

Like reading and writing, financial literacy is a fundamental building block for the well-being of individuals, communities and society at large. At Schwab, we’re committed to improving financial literacy by sharing our time, knowledge and resources. We’ve made a good beginning by:

• Collaborating with Boys & Girls Clubs of America (BGCA) on the Money Matters: Make It CountSM program to help teens from underserved communities learn the basics of personal finance

• Awarding scholarships for select BGCA teens who complete the Money Matters program and demonstrate their financial knowledge and skills

• Creating SchwabMoneyWise.com, an educational website for families featuring calculators, a budget planner and other resources to help adults and kids alike

• Encouraging our employees to volunteer their time and talents to promote financial literacy

But there’s much more to do. That’s why I’m proud to be working with nonprofit, government and corporate partners to lead a national effort to improve financial education and literacy. Through the President’s Advisory Council on Financial Literacy and other important initiatives, we’re aiming to improve the financial well-being of Americans from all walks of life.

I hope you’ll join us in our commitment by sharing the ideas and activities in this booklet with a child you care about. Individually and together, we can all play a part in creating opportunities to improve financial literacy for all Americans.

Carrie Schwab-Pomerantz President, Charles Schwab Foundation