Only 16% of 18 to 26yr olds in America feel optimistic about their financial future. When high school students were asked which one course they think would most benefit their lives, the majority responded with money management. Young people are yearning to be better prepared to take on adult responsibilities.
As a parent, you can help set your child up for success by discussing and practicing money management tactics in age-appropriate ways as they grow up. The following eight actions will help you teach your kids financial literacy and have fun while doing it.
1. Start With The Fundamentals
For kids as young as 3, you can start by using books and games for exposure. Both the US Mint and Federal Reserves have kid-focused education sites with searchable databases of games, videos, and books that will help you provide adequate exposure. As kids get older, be proactive about involving them when you are carrying out basic money management tasks like visiting a bank, writing a check or a money order.
Beyond the basics, make it a point to practice and provide guidance around the following money concepts before they become independent decision makers.
2. Earning: Monetize Chores Wisely
Money management begins with earning an income. Most parents start introducing the idea of earning money by monetizing chores and household tasks. While this is a great way to teach children about work however be careful that you are not teaching them that everything they contribute to the home deserves an incentive.
You want your child to be willing to be a good citizen of the household and contributing to maintaining the home without needing to be incentivized.
For example, washing your dishes after eating could be considered a regular chore but offering to clean out a junk closet could be worthy of cash. You decide for your family where to draw the line.
3: Budgeting: Role Play With Your Household Expenses
If you don’t budget your household expenses, you should consider starting. Budgeting gives you visibility to how you are spending your money and allows you to optimize your finances for the most value to you. This is a great practice to teach to your children and one that will help them immensely as an adult.
A fun way to facilitate this is the start the week by putting the budget for the week in an envelope using realistic play money that you can buy from online. As your family spends money during the week, your child can physically take out the amount spent from the envelope and be a part of making the active trade-offs a budget requires as you actively manage it.
4. Saving: Match + Grow Your Child’s Efforts
Get your child started with the idea of saving ten percent of any new money they earn. A piggy bank works great to start for school-age children; we love the money savvy pig with several slots for the different savings buckets like giving and investing. It has a transparent design that is effective in providing a visual of their growing savings.
As they get older, consider opening up a bank account for your child. There are several online kid-friendly accounts that will allow you to deposit money online and provide your child with a debit card for withdrawals. You can also ask your bank about opening a custodian account generally called a UTMA.
Be sure to help them understand the difference between saving and investing and the importance of having both. A great way to encourage your child’s efforts when she begins to actively save is to match whatever they save 100% similar to how 401k matches work.
5. Debt: Don’t Tell Them There Is Good Debt
Inadequate education about debt and credit management is what causes things to fall about in early adulthood. Driving home the concept of compounding interest on debt early will help set the right expectations about when it is appropriate to take on debt and when it is counterproductive.
This $2,000 pizza video is a great way to illustrate this point.
While some debt is acceptable, don’t normalize debt by calling any kind of borrowed money “good debt”. It is better to explain to your child that some debt can be productive because the underlying asset appreciates in value over time.
6. Investing: Make Money Moves Together
Many adults struggle to understand the investment vehicles available so it can be tough to teach it to a child. If you dont feel comfortable with investing, consider it an opportunity to learn along side your child.
For preschool-aged kids, focus on the idea of growth. Use plant science and gardening as an analog to help connect the dots and drive home the idea that just like once a seed is planted, it grows over time if nurtured well, money can grow over time when invested well.
The Stock Market Game is a game-based resource that stimulates the stock market for kids and helps them understand how stock investing works. When they are ready to actually make an investment, Stock Pile will allow fractional purchases of recognizable brands. If your child wants an ownership stake in Disney, they don’t have to be discouraged by the $100+ price per share, they can buy a fraction of it at any amount they can afford. Give A Share will let you gift 1 share of popular brands.
7. Giving: Take the $2 A Day Challenge
One of the best gifts you can give your child is the gift of perspective. When it comes to curbing spending, perspective is especially helpful for inspiring gratitude and contentment.
According to the $2 A Day book, half a million households, including three million children in America live on $2 per person a day. For a family of 5, that is only $10. Many of us spend that on coffee and breakfast in the first few hours of the day.
For a week, challenge your family to live on $2 per person a day and talk about what the reality is for many children and households. Perhaps you can use this exercise to spark deeper conversation about the importance of giving to improve the quality of life for people in need.
Charitable giving is not the only way to give with impact. Encourage them to show gratitude with thank you gifts or kind gestures whenever appropriate.
8. Negotiating: Help Her Find Her Voice
This one requires more attention than we generally give it when financial literacy is discussed. Helping your children understand the concepts of value, supply, and demand will help them understand when it is appropriate to negotiate respectfully and effectively.
Make your daughter aware of the gender wage gap and the effect that the inability to negotiate one’s worth contributes to it. Encourage your child to practice negotiating at home by showing her how to create win-win solutions. For example, rather than being upset at being asked to go do a chore, she can negotiate to do it at a later time. If they keep their word, they can earn the right to negotiate successfully again.