Raising financially literate kids take work.
Money skills are critical to your child’s future. While money can’t buy happiness, it does confer material stability – everyone needs a house, healthcare, and a retirement plan, for example. Also, knowing you have enough for a rainy day can bring you peace of mind. With money skills, your child can build a good life, essentially.
Relying on public education to equip your child with the skills they need may not be enough. For instance, only 51.4 percent of young adults (18-25 years) say money management lessons would have most benefited their lives, reports National Financial Educators Council – they didn’t get enough lessons (or any). While many schools now offer personal finance as a part of the curriculum, many don’t. Filling the gaps in your child’s knowledge is every parent’s responsibility.
In this mini-guide, we offer some simple suggestions on how you could raise your kids to be financially literate. Here’s where to start:
Make clear your expectations
Kids thrive on expectations. More importantly, kids are likely to meet the expectations you set for them, says ParentCo. That’s why setting some for your kids is a necessary first step in making them financially literate. It gives them concrete goals to achieve and the clarity they need to get there.
Consider having a conversation or a series of conversations about financial literacy with your child. Make clear that you, one day, want them to be financially savvy. What does that mean? Some suggestions:
- Self-sufficiency: They should be able to independently make their own money, through their own talents and hard work.
- Debt management: They may need to borrow money. If they do, they need to manage the debt to avoid making the situation worse. Also, they need to build a good credit score.
- Long-term wealth building: They need to save a portion of their income and, ideally, invest it to build a nest egg.
- Financial skills: They need to have basic financial skills like budgeting, saving, investing, and planning.
This applies to younger kids too, although you may have to introduce complex concepts to them slowly over time.
Share stories of financially-successful and not-so-successful people
Children learn better through stories than activities (or dry factual information for that matter). They may not understand why you want them to be financially literate, which may prevent them from giving it their all. That’s where a good story comes in. Stories of financially-successful people can provide them a point of reference as well as a source of inspiration. They’ll know what financial literacy looks like, the results it can achieve, and what they need to do to get there. If these are people you know personally, even better. It gives your child a role model to emulate.
You should also consider sharing stories of financially illiterate people – people who are drowning in debt due to poor money management – if your child is of sufficient age. It teaches kids what happens if they don’t manage their finances properly. It may be a tough lesson to learn, but it’s something better learned second-hand than first.
Providing example of both kids helps raise financially literate kids that understand both sides of wealth.
Give them an allowance
Giving your kids a fixed allowance teaches them the value of money. They learn how to budget and save to buy the things they want, instead of blowing everything today for instant gratification (or having you buy things for them). If you can tie the allowance to chores, it can teach them the value of hard work and discipline at the same time. They learn to earn their money and value it more. Also, instead of buying the non-essential things they want outright, consider making it a reward for good behavior.
Give them actual financial responsibility with fun activities
Nothing teaches financial literacy like actual responsibility. Put them in charge of day-to-day expenses for a brief period to give them real, practical experience. You can make it a fun game to get your kids hooked. Some examples:
- Grocery shopping: Give them a fixed amount of money for food for a day. Eat what they buy, satisfying or otherwise.
- Travel tickets: Put them in charge of purchasing basic travel tickets – like paying for the subway or the bus.
- Entertainment: Put them in charge of the family entertainment for the weekend. You could give them a goal – to have the most amount of fun with the smallest amount of money possible.
If you allow them to experience the “natural consequences” of their actions, it can build up financial discipline.
Get them a savings bank account
Every adult needs solid banking skills. Opening a savings bank account for your child is an excellent, fun way to teach them banking. It introduces them to the system and teaches them basic financing. They learn how to interact with cashiers and get basic banking tasks done – like withdrawing and depositing money. It can encourage them to put away money into their account to make it grow.
Explain tax and the economy in simple terms
Who pays for the road, the parks, and the police? The answer is everyone does, together. Explaining tax like property tax (a necessary expense no one likes) and the interdependent economy to your kids is an essential part of financial literacy. They may not be able to grasp the concepts immediately, but at least they will know they need to learn about taxation.
Encourage them to start their own business
Encouraging your kids to start their own business is killing many birds with one stone. It teaches your kids independence, initiative, and entrepreneurial spirit. Furthermore, it builds up a host of financial skills. They learn how to fund a business, how to manage the inflow and outflow of funds to provide goods or services, and how to turn a profit to stay operational.
You will need to help and guide them through the process. Identify a fun business they’d love – a mini-catering service, a shop, or a pet-sitting center – and then help them develop the idea. For financing, some seed-money options to discuss with your child are personal savings, credit cards, bank loans, help from friends and family, and even crowdfunding.
Conclusion
Finally, keep in mind that your child looks up to you and will imitate everything you do (or say). If you create and maintain healthy financial habits and routines yourself, your child will pick them up naturally as they grow up. Be open about money and include them in your financial decisions, when possible, for the best results.
Financially literate kids will prosper in the world because they have a basis of understanding many others don’t.
Image via Unsplash
Woodson Wealth Management is a fee-only, financial and investment advisory firm dedicated to helping you continue to do what you love to do with ZERO financial stress. Connect with us today for more info! 858-923-4500