Note: This article is part of the Back-to-School Financial Wellness series. Also, check out Educators, Put Personal Finance $ on Your Back-to-School List.
Most of us picked up money lessons instinctively through observations over the years or by earning a degree in the School of Hard-Knocks. We didn’t necessarily grow up talking about personal finance as children because it may have been a hush-hush topic at home and it was not explicitly taught in schools.
Nowadays, however, many families and educators want to do better and give the younger generation a stronger financial literacy foundation.
While fluency with numbers and solving word problems are excellent skills, these strategies are simply not enough. Math class is helpful, but kids must also learn how to save, invest, avoid bad debt, open bank accounts, and more.
It does not have to be overly complicated, but it does require intentional actions. Research indicates that money habits are developed by age 7. So, calling all money mentors! We’ve got some work to do and here are some “calculated” ideas to help kids and teens understand how money works in the real world.
1 – Talk about money. Long gone are the days of undercover finance. We have to narrate our decisions so young people understand how to think about money. For example, we can share all or at least a portion of our household budgets to explain various expenses, such as bills, rent or mortgage, fees, etc.
If a speeding ticket comes in the mail (it’s a safe zone- no judgement here!), show it to them so they understand natural financial consequences. Kids can read through what’s fake, so it’s better to keep it real with them anyways.
If you are planning a vacation, allow them to help customize your travel plans by researching the costs for the various components of your trip like where you will stay, excursions, meals, etc. Finally, model goal setting and articulate what you are working to achieve as you converse with them about their money targets as well. Are you/they saving up for something in particular? What do you/they want? What do you/they need?
2 – Teach work ethic and balance. We all know money does not grow on trees or fall from the sky. Kids are provided for and taken care of by adults so sometimes it may seem that money may just magically appear.
It is helpful to demonstrate that money spent for those toys, games, etc. came from someone’s sweat equity – ours.
Model and explain that working is one way to generate income to afford life’s various expenses. As an employee, manager, stay-at-home parent, entrepreneur, or whatever work you undertake, we can demonstrate what it means to be a “professional.” Fulfilling responsibilities. Being on time. Interacting with others respectfully.
In one way or another, you work hard for your money. Children and teens should be taught to understand and appreciate that.
3 – Consider an allowance. A practical strategy to help kids understand the value and implications of how to spend money is by providing them with an allowance. While the amount may vary according to their age and your discretionary income, an allowance can help to emphasize kids’ independence and provide a space to simulate how money works. An allowance helps young people learn to save, invest, spend, and give such that they develop savvy money habits from an early age.
4 – Teach the value of being a content creator, not just a content consumer. Social media, YouTube University, and the ever-evolving network of apps and searchable information on the web present children (and adults, too!) with so much content that we simply can not consume it all. In many ways, it’s like we have all the ideas and tools within our reach at the click of a button. While it is helpful to take in what we can from the sources we trust or enjoy the most, we also need to teach our children to activate their own genius as content creators. What are the dreams they wish to build? Maybe they want to code a new video game? Design a room? Bake and sell delectables? Write a book? The sky is the limit. Young people should understand that interest and passions can generate not only a sense of fulfillment, but also perhaps a viable stream of income.
5 – Open a custodial brokerage account so children and teens can learn more about the stock market and investing. Albert Einstein is believed to have said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it”. Kids need to understand that money grows over time when invested with the right strategies. The piggy bank is a helpful tool to guide towards saving and delayed gratification. However, as our children get older it’s important to expose them to the stock market money machine. There are numerous kid-friendly brokerage accounts, such as Stockpile and Fidelity. You can purchase dollar amounts of specific shares to jump in for as a little as $1.
So, does your child love Disney characters, the latest Nike gear, or their favorite Apple products? If so, maybe they will wish to consider purchasing specific equities like these. You can also begin to discuss passive income through the exploration of stocks with dividend payouts.
Budget some of your child’s allowance towards investing and allow them to experience how the market works in real-time.
6 – Read age-appropriate books about money – together! Reading for 20 minutes or more a day is proven to boost student achievement. Reading should be fun and enjoyable for young people as they explore their various genres and topics of interest. Families and educators can help guide young people to understand key principles of financial wellness through the power of reading. It is particularly impactful when we read together and talk about the text and its connections to our daily lives. Here are some books to check out across the spectrum of approximate age ranges:
Bottom line: Young people need to be guided to learn more about money. The critical, life-long lessons about personal finance will not develop through osmosis. And, adults should take on the responsibility to be money mentors – not with perfection, but with intentionality.
Let’s make sure to demystify money for our children and teens. They’re worth it and it’s one of the greatest investments we can ever make.