It’s no secret that I feel that our nation lacks financial literacy. Most other professionals in my industry feel the same as well. The lack of basic financial knowledge not only applies to adults, but across the entire age spectrum as well. On one hand – this is good for someone like me, who make a living providing financial advice as well as working with the community.
However, as for our nation’s youth it’s a different story. There are not many courses offered in personal finance. When I went to school many moons ago, the closest classes I took to personal finance were typing and math. In college I choose to major in Finance, but until age 20 – that was it!
That said, I think most parents can and should be doing better to raise money savvy kids. Our children are obviously the future, and having them learn about money issues at an early age will better prepare them for the real world. In turn the world will be a stronger place. I am certainly grateful for all the money lessons my parents taught me growing up.
One great resource to give concrete ideas to get you going is a book called “Yes, You Can…Raise Financially Aware Kids” by Jack Jonathan. For those interested in obtaining a copy of the book, let me know and I can help get one in your hands. If you don’t want to read it, then I figured I’d at least provide a few examples of things you should consider.
One of the easiest ways to get your child financially focused is letting them earn an allowance. Once parents can agree on an amount, a frequency, what age to start, and what chores are involved, then this can be one of the best hands-on methods to helping them become financial responsible. The family allowance policy should be communicated well amongst all parties and the rules should be mutually agreed upon (no power struggles!).
I remember getting my first allowance and it was $1 per week; and I also remember getting so excited every year because it went up $.25. I mean, I was only 10 years old but my parents made sure that I understood there was is no free meal in life. And as I learned the value of money, and what it could or could not buy me… I was certainly more aware of how I spent it. I no longer wanted to buy all the candy I saw at the local convenience store, because it would deplete everything I just saved for the past 6 months!
To help children understand the concept of compounding, you can use many examples in mother nature to explain it. For example, explain how a single seed of wheat can create 100 seeds of wheat if properly cared for. If those 100 seeds were planted and cared for again, it can produce 10,000 more seeds! And so on.
You can teach young children using pennies. Tell them for every day that goes by where they don’t spend their penny, you will give them another penny. They will quickly watch it escalate into a nice little penny pile! If they are older, you can share certain graphs and charts showing how savings can potentially grow and compound on itself. There is no shortage of them available on the internet.
Opening them a bank account would be a good first step when the time is right. They will learn how a bank operates, where the money goes, how they can access it if needed, and be able to visually see the interest accumulate over time.
One of my vivid childhood memories was when my parents would take me to the bank so the teller can update our account register (this was an actual book that the teller would print the up-to-date interest and total balance on). When we got home, my parents would explain the rate we were getting and how that added up. Of course, my dad and I always double checked the math to make sure it looked kosher!
You’d be surprised at how early your children may be targeted with credit card offers. Teaching a child that a little piece of plastic can have the same buying power as a stack of bills is hard for young minds to comprehend. So helping them understand that money has to be repaid at some point is crucial.
It would be wise to also guide them to use it only in certain circumstances, as well as using it only for things they can afford and pay off in the next month. With today’s rapid advance in technology, it’s probable at some point that physical currency may be extinct in the future. Whether crypto currency is the future, or paying through mobile devices, the lesson is still the same – don’t spend it if you don’t got it!
Balancing a Budget
Many parents may not be good at this, but it doesn’t mean you cannot get your kids thinking about it! Have them think about creating a plan for what they are going to spend their money on, and how they will make it to the next week without spending everything they have. They would need to consider what money is coming in (allowance, work outside the home, etc.) and what is owed or purchased (lunches, snacks, clothing, etc.). Have them think about the “unusual” expenses as well, events such as a friends’ birthday or a holiday coming up. This will eventually be a nice segue into preparing for unexpected expenses like illness or other insurance needs.
Becoming a Wise Consumer
This is the last area that I will share, but for most parents this can possibly be the most fun…because it involves shopping! Since everyone shops, we can fairly easily teach out kids how to be mindful consumers. I am referring to things such as comparison shopping – mainly pricing but also the external factors which go into the price (condition, quality, advertising, convivence of purchase, sales, warranties, etc.).
Taking it a step further, we should be educating our kids at an early age the concept of NEEDS VS. WANTS. The conversation might go something like, “Hey Ella, do you really need it, or do you just want it? And do you have the money for it? Do you realize you might not be able to afford the weekly (fill in the blank) that you always like to get?”
Being a wise consumer may also involve developing good negotiation skills. You may already know your kid’s negotiation skills, so why not help them expand those skills in a typical buyer-seller situation? They will soon craft their own style, which may be different from your own. As people may know, I rarely hesitate to ask if I can get a deal on something! Never hurts to ask – especially if’s polite and sincere.
So there’s some of my thoughts to get the ole hamster wheel going. Regardless of how you would evaluate your own financial acumen, take the time to educate your kids in hopes they will be a little savvier when it comes to their financial future.