You’ve heard of street smarts and book smarts, but what about money smarts? After all, financial literacy is more relevant than ever. Without it, properly addressing today’s complex financial needs can be that much harder. This includes dealing with higher personal debt levels, planning for longer life expectancy and retirement, and navigating a growing range of sophisticated financial products. Understanding the fundamentals of money management helps equip people to save, spend and invest well in the face of these challenges.
No wonder financial literacy is becoming recognized as a basic life skill – one that can help pave the way to greater financial security, especially when learned early on. That’s why increasingly, financial education is being integrated into the core curriculum for children as young as elementary-school age.
As a parent, you can also help your kids at any age build important money skills with hands-on learning experiences. The following are some easy-to-implement ideas for raising money-smart kids.
Teachable moments about money are everywhere
Learning the value of money is a process that takes time. For young kids, simple activities and games that help them identify coins and bills are a fun way to introduce money concepts. Encourage them to save with a piggy bank using a clear glass or plastic jar so they can watch their pile of money grow before their eyes.
For older kids who are ready to see how much things really cost, you could review your utility bills together to help them recognize how their actions – for example, leaving the lights on or the tap running – have financial consequences. Similarly, explain what you’re doing when you use an ATM card or point out money-saving opportunities at, for example, the grocery store.
Talking about money and how best to use it should be routine, an ongoing conversation that evolves as your kids do.
Help them practice what you preach
It’s easier for kids to get better at money management when they have money to manage. Rather than just giving them an allowance, have them divide any funds they receive among different savings and spending buckets. A good rule of thumb is to allow at least 20% of their “earnings” to long-term savings. Another approach might involve organizing a yard sale or even a lemonade stand to help them apply their knowledge while teaching them about budgeting for supplies and managing profits (or losses!). It’s also a chance for them to experience firsthand how much time and effort it can take to make money.
When your kids are older, you can open a bank account for them to periodically deposit their savings into. This can be ideal for teaching them about interest and the magic of compounding, and it lays the groundwork for lessons on investing and getting their money working harder for them.
From wise words to wise spending
It can start with teaching your kids the difference between needs and wants, and move to helping them create and stay within a budget for, say, school supplies. This forces them to think twice about buying that expensive glitter pen they want only because their friends have it. Once your kids have a steadier income, you can put them “in charge” of one of their expenses (like a phone or internet bill) and enforce real consequences for late payments. Doing so helps them to see how their saving and spending decisions impact their bottom line.
Get a head start
Like all learning, financial literacy is a lifelong exercise. What matters most isn’t when you start, but that you start in the first place. So many people have a negative relationship with money because they never took the time to develop healthy habits around it and don’t understand how to use it to their advantage. Unlike money itself, teaching your kids financial literacy is a gift with unlimited potential.
We can support you in educating your kids on money matters. For more helpful tips, contact our office today.