Money is one of the taboo subjects that some parents don’t want to talk about with their children. The usual reasons for this preference include being uncomfortable discussing the family’s financial status and not burdening the kids on what is perceived as an “adult problem.”
FINRA Investor Education Foundation found a decline in Americans’ financial literacy across various age groups in a three-year study cited here. The study found that participants in the 18–34 age bracket showed the biggest decline in answering the relevant questions, from 30 per cent in 2009 to 17 per cent in 2018.
If you are a parent reading this, you may want to start your kids early about personal finance. Teach them the basics to help shape their views about money and improve their financial decisions in the future.
The Concept of Money
Before you teach children about saving, show them how spending works first. In a FINRA blog post, Jump$tart Coalition for Personal Financial Literacy CEO Laura Levine relates how she would give her four-year-old son a dollar and take him to the store to buy snacks. Through this exercise, the child learned the value of a dollar based on what it can or can’t buy.
Wants versus Needs
Adults can still get confused in distinguishing “needs” and “wants.” Come clear with the difference between the two categories before you broach the subject to the kids. Surely, they’ll ask about toys, candies, and gadgets, and your definition, along with real-life examples, will put things in perspective. You can also turn to picture books, videos, and grocery carts while shopping to illustrate your point.
Saving and Setting a Goal
No one’s too young to have a savings habit. You can give your children a piggy bank or a jar and encourage them to drop a coin or a penny every day. To make the exercise more effective and exciting to them, anchor the savings plan to a goal, like buying a toy or book. Kids can glean a lot of things from the frugal habit:
- Learning to count money
- Learning to prioritize
- Setting goals
- Tracking spending
- Saving and waiting a little bit to get a bigger or better version of something
- Having extra funds for the rainy day
Growing Money
While piggy banks are a good habit builder, you may need to take your children to an actual bank to open a savings account. This way, their money grows a bit by earning interest every month or year. You can monitor any movement in the account through the bank’s app. What’s cool about today’s banking landscape is you can open an account online with digital banks.
Shopping Around
One thing that kids can learn while shopping with you is the idea of shopping around. That means not settling for what’s available even if it’s affordable but to go around for better options. This is a valuable lesson they can take with them when the time comes for them to look for mortgages, auto loans, insurance plans, and other financial products. It also helps if they see you ask a lot of questions before you purchase something.
Having a Budget
What your kids know about spending and saving and prioritizing needs over wants, they can apply to budgeting. The simplified formula is income − savings = expenses or, in their case, allowance − savings = free money to spend. Another rule worth checking and you may tweak is the 50/20/30 rule from US senator Elizabeth Warren.
Getting Into Business
The humble lemonade stand is proof that children have the concepts of earning money, saving, and hard work itself. Exposure is an effective way to pass the entrepreneurial spirit to your kids as they learn from what you do.
If you have a small business that involves selling stuff online like children’s clothes, you can hire your kids to fold or sort inventory. They can model the clothes so that shoppers can see how these look on real people. Or you can ask them to design the logo or the clothes themselves. No task is big or small for a child.
Be a Model Worth Emulating
Kids learn by example, so live the principles you tell them about. Still, leave a room for you or the kids to commit mistakes, and learn from those.
What financially savvy tips have you taught your kids today?