As parents, we worry about everything that affects our children, from their health and safety to their education. While the ABC’s are important, what about financial literacy? Whether it’s oversight or avoidance, few parents talk to their kids about money — a choice that can cause problems later in life. Don’t limit your offspring’s abilities. Start early by utilizing the following teaching methods. Begin by:
- Creating a mandatory investment plan. Many parents never teach their kids how save or invest for the future. Choose a different path by taking 20% of your child’s earnings—birthday money, paper route salary, etc.—to help him invest in an IRA or other savings vehicle. Help them track its progress as they grow up and decide how to use the cash as they mature. Instilling this habit will also lessen the pains of saving for emergencies and retirement.
- Including them in the budgeting process. Where’s the family budget? Is it tucked away on your computer or visible for everyone to see? Consider making a visual aid to help your kids understand where the money goes each month. When your child asks for the latest video game, don’t say, “We can’t afford it,” or “Money doesn’t grow on trees.” Teach him to check the budget and rely on math and his earned allowance for the things he wants.
- Creating a rankings system. Allowance is common in the average household, but does it really teach kids about the value money? Creating a rewards system that ranks tasks by importance is an effective way to illustrate a hierarchy of expense importance, i.e., mortgage, car payment, student loans, etc. Use stickers or another visual to illustrate how each child is managing their responsibilities.
- Creating a family coupon goal (and reward). Kids thrive on results and rewards, and creating a coupon system is a fun way to save money and instill a frugal mindset. Ask your kids to help you collect coupons for everything you buy: from groceries and supplies to furniture and entertainment expenses. Tally the total savings at the end of six months and use the funds to take a family trip.
- Encouraging work and learning the value of a dollar. The concept of wage is difficult for kids to understand. The next time Junior asks for a toy, give him an opportunity to earn it for himself. He’ll be proud of his accomplishment and learn the value of earnings. It’s a win-win.
- Illustrating the dangers of credit. The concept of credit is a little vague for the elementary set. If you’ve ever heard, “Can’t you just charge it?” now is the time to explain the basics of borrowing. Debunk the myth that credit is a bottomless bank account, or else you’ll be dealing with larger problems the moment your kids turn 18. Illustrate the dangers by loaning them money with interest attached. Give them the option of paying you back in full with their next allowance, or submitting a minimum payment. Attach interest to the latter and show them how unpaid bills can become overwhelming over time. A few weeks months of lost allowance will help them resist the temptations of credit as they reach adulthood.
- Planning for college together. Higher education is no longer affordable in our culture. By 2030, the cost of in-state public tuition will exceed $300,000 for a four-year education. This figure is unattainable for the average family. Save early and include your child in the process. Review:
- How much you plan to contribute
- Conditions of funds, e.g., maintaining a certain GPA, graduating within four years, etc.
- How they’ll cover their portion of tuition and fees, e.g., part-time work, scholarships and grants, federally-backed student loans, etc.
Begin this conversation early to instill excitement and responsibility. Reviewing your goals periodically will help your child develop a sense of ownership for their education and appreciation for the money earned.
The bottom line: Parenting is a tough job, and preparing your children for adulthood means teaching financial literacy and good habits. Challenge their little minds and learn something together.