READ TIME: 8 MIN
What if I told you that the most valuable legacy you can pass on to your kids and grandkids isn’t an object or money, but education about effectively managing money? April is Financial Literacy Month. This is the perfect time to focus on your child’s financial education. Teaching valuable money skills while kids are young puts them at an advantage when it comes time to create and live sustainable lifestyles as adults.
Teaching the Basics
It’s easy for young people to grasp the basics of how money in exchange for goods and services works through simple activities like the ones below. But be careful: it’s just as easy for them to pick up any bad money habits you have as well. These three “do as I do” lessons are a great starting point:
- Money doesn’t grow on trees
Most transactions kids see happen with the swipe of a credit card. They need to understand that cards don’t represent unlimited funds, and spending more than you have creates debt. Try giving them $20 and send them to pick out snacks or to the beauty aisle. It will be a good opportunity to see their financial decision-making in action.
- Needs vs. wants
Knowing the difference between things they want and things they need is an invaluable skill they’ll use forever. Try this: let your kids know your budget for your next shopping trip. As you choose items, explain which items are needs and wants, and separate them into two carts.
- Delayed gratification
Most successful adults say they were taught to wait for things they wanted at a young age, which helps them avoid debt. Pick out an item or experience to save for as a family. Create a chart using the number of days and amount of money it’ll take to afford it. Cross off the days as they pass while adding up the accumulated funds. Factor in setbacks due to any impulse purchases along the way.
Teach the Power of a Budget
For most children and teens, once they get their hands on cash, they can’t wait to spend it. If they aren’t taught the power of budgeting and delayed gratification now, not much is likely to change in adulthood. Using tangible lessons built on tried-and-true processes, you can teach them to be patient spenders early on and adopt sound money management skills. Here are three learning opportunities that work well together:
- Start an allowance
A weekly allowance for chores around the house is a must! People are more prone to safeguard money they’ve worked for rather than money they’ve been given. Allowances encourage budgeting and good saving habits. Give them opportunities to earn more money for doing extra work to instill the concept that working harder usually pays more.
- Implement the ‘three jars’ system
This system is great for tangibly illustrating the concepts of saving, spending, and giving for younger kids, but it can also be done using smartphone apps for older ones. Label three jars or accounts: save, spend, and share. Have kids decide what portion of their allowances or paychecks goes into each. The money put into ‘save’ can be invested, or held longer-term for larger toys or events. The money in ‘spend’ goes toward discretionary spending. And the money in ‘share’ goes toward a charity of their choice.
- Open a savings account with a debit card
Research local and online banks to educate your kids about interest rates and how compound interest impacts a balance over time. Go with them to open their first savings account and ask about issuing them a debit card. Show them how their savings can grow, and how debit card purchases can impact their balances.
If your kids regularly save their allowances and birthday money, they’re well on their way to establishing great money habits. So, let’s build on that strong foundation with some early entrepreneurship lessons. Here are three real-world lessons and/or activities to further prepare kids and teens to successfully create wealth:
- Encourage entrepreneurship early
As kids get older, encourage them to ask neighbors if they can babysit, mow their lawns or feed pets for money. Help them find work by getting the word out to your friends and co-workers. When they earn extra cash, strategize with them about how much to save, spend, and give.
- Teach comparison shopping
Teaching kids and teens to save money while shopping is invaluable! Shopping at discount stores, using coupons, and buying generic can save tens of thousands of dollars throughout a lifetime. Take them shopping at the local grocery store for the items used in their favorite recipes, and add up the cost of the ingredients buying the name-brand products. Then add up the cost of similar ingredients when buying the generic store-brand products with coupons. Compare the price differences!
- Teach budgeting
Staying within a budget is the foundation for financial success. They can only spend what they can afford, otherwise, they’ll incur debt. Determine what sporting equipment they need for the next season. Just like with groceries, show them price differences of new things at a retail store vs. gently-used things at a second-hand store. Explain how you can mix and match new and used to stay within budget. Since these are growth-spurt years, help them see why it’s hard to get the full value out of brand new equipment if it only fits for one season.
Start teaching your kids the value of every dollar through hard work and real-life transactions, and you’ll help them realize how each and every dollar saved can impact their future. I always hope my clients feel confident discussing money with their families. But the truth is, talking about money can be very uncomfortable for many. Helping your kids become financially literate should pay dividends as they get older. Please reach out if you have any questions. I am always happy to assist you with getting the whole family involved!