Every day in our practice, we see the devastation that financial insolvency creates not only for the client, but also the ripple effect that it has on the rest of the family. One way to prevent financial disasters for the next generation is to teach our kids better ways to understand and manage money. We’ve gathered some of the best advice educators and financial experts have to offer to help you with the basics of teaching money management and budgeting to your kids.
Lesson #1 – Start Early
Your children see you handle money every day. From simple decision making at the grocery store about sale products versus the family favorites to stopping by the bank to make a deposit, your children are learning about money and its use in daily living. Make a point to help your children understand that using money is a cause and effect process. As early as age three, “children begin to understand that objects have different values,” says the Sesame Street Workshop’s special magazine supplement, “Talking Cents.” By age four, “children understand that coins have different values and that those coins can be exchanged for different objects.” As you go through your daily activities like the grocery store remember that no opportunity is too small to start making a good impression about money with kids.
Lesson #2 – Encourage Your Child’s Business Sense
Children have a tremendous sense of entrepreneurialism and love to pretend. Incorporate these concepts by encouraging business play themes. Start by setting up a small grocery store in your kitchen or an auto repair shop in your living room. Let your child’s imagination soar as he negotiates purchases and schedules repairs of your giant plastic buggy. As children mature, expand on these themes by allowing a lemonade stand or some other form of small business. Give them simple tools like a notebook and a calculator to track expenses, sales and even calculate profits for their business.
Lesson #3 – Teach that patience pays off.
Impulse buying is big business in retail markets. According to the U.S. Department of Commerce’s Bureau of Economic Analysis (BEA), Americans spent approximately $10.3 trillion dollars in 2010 on personal consumption expenditures. With industry estimates of 40% of all purchases being impulse buys, defined as those purchases that are unplanned or unnecessary, the simple math adds up to a staggering $4.2 trillion dollars on impulse purchases alone. Teaching our children to wait to make a purchase can provide a much-needed safety net allowing for more rational decision making. For example, ABC personal finance correspondent Mellody Hobson recommends offering your 5-year-old daughter a Barbie doll today or $20 next week. Which do you think she would choose? “Explain that if she waits the week she could buy three Barbie dolls with the $20 instead of having just one Barbie doll today,” continued Hobson. The same lesson can be taught using a savings plan and real money where you might match her savings dollar for dollar over the course of a year. Lessons on delayed gratification can teach patience, financial planning, and how to save for bigger items. These lessons are necessary during the teen years and into adulthood when the financial stakes for major purchases such as college student loans, a car, or a home become even greater.
Lesson #4 – Remember to give back.
Teaching money skills is also a great opportunity to teach generosity and build a sense of community. Not only can you donate money to a cause, but you can teach your children that donation of time and talents also have value. So often the latter two contributions are overlooked for the convenience factor of donating money to causes. Ways to encourage community while still teaching money skills can include raising money for a local charity walk, working car washes, or even stocking items at food bank shelves. All of these opportunities coupled with the ‘value’ of donating time and talents can add up to a great financial lesson in what it means to be a good community citizen.
Lesson #5 – Keep up the good work.
As you know with all other life lessons, teaching life skills to children isn’t a one-shot deal. It takes time and repetition in order to make skills a permanent habit. If you have a component of fun mixed in with your lessons, they’ll be even more memorable ways to reinforce good behaviors.
How are you teaching your kids about money?