Financial management skills are fundamental to being an independent and empowered adult. Yet financial literacy is not being taught in our schools. So that leaves one option: it has to be taught in the home. Teaching kids about money might seem like a daunting task, but it could be a lot easier than you think. Here are 5 things you can do to kick-start your campaign.
- Pay an allowance: Their first introduction to a “salary”. The allowance may or may not be tied to having completed household chores. If the allowance is tied to chores, explain that if those chores aren’t done, then the allowance will not be paid. In real life, one might be marginalized or penalized. How would that feel?
- Spend, Save, Invest, or Give Away. Introduce the concepts of discretionary vs. non-discretionary spending. Begin to include your kids in conversations and discussions about family finances. Have them save their allowance to buy the things they want. For big-ticket items, you might provide an incentive by helping them make the purchase. For example, a bike is a big-ticket item for a kid, so you might offer to pay for half of the purchase, provided they save up and pay the other half.
3–7: Conversations about money can begin with the difference between coins and dollars and making the connection with what those will buy.
8–12: Introduce the concept of wants vs. needs. When shopping, ask kids to identify if purchases are wants or needs.
13–17: You don’t have to expose the entire household cash flow, but engage kids in household budgeting. Talk about how to build a budget, prioritize expenses, and incorporate savings. The next time they want something, ask, "How will this fit in the overall household budget?" Put the concepts of Spend/Save/Invest/Give Away to work. Begin a conversation about credit cards and building a credit file.
18+: Talk about credit cards! They will be bombarded with credit card offers once they enter college. Here is where they will begin to build their credit file. Assist them in building or creating a “budget” and let them live with their decisions—if they make a poor decision and/or overspend, allow them the opportunity to learn from the mistake.
- Encourage thoughtful giving. For “Give Away”, engage your kids in selecting the organizations, non-profits, or individuals to give to, and ask them, "Why do you want to support this?" You might be very surprised.
- Help them evaluate their choices. Allow them to use their funds (gifts, saved allowance, etc.) to make their own non-discretionary purchases. Walk them through the math of the total cost: purchase price plus tax vs. usability—how long will the item last? For example, clothes may only last one season and then end up at the back of the closet. Is one item really worth 3 months of their saved allowance? Now is the time for them to learn the concept of choices and consequences.
- Don’t save them! (This is tough.) Life is a great teacher. Although you don’t want your child to experience disappointment, it is sometimes the best gift you can give them: life in the real world, but in a supportive environment.
- fpanet.org: Financial Planning Association website. Type in "Kids and Money" and a list of articles and resources will pop up.
- moneyscholar.org: The “piggybank” website has a robust listing of resources for teaching kids about money.
- itsahabit.com: Great for younger children!
- parents.com/parenting/money/family-finances/teaching-kids-about-money-an-age-by-age-guide: As the title implies, this is a guide for age-appropriate conversations with your kids.
- dfi.wa.gov/financial-education/games-kids: Kids love games. They’ll learn and have fun at the same time. So will you!
- moneyinstructor.com/kids: Step-by-step instructional guide with free curriculum and downloadable activities.