We spend a lot of time teaching our kids. Explicitly or implicitly. We help them learn how to read and count when they’re young. Then, they advance to calculate math algorithms, apply the scientific method, and write well-organized essays.
But, let’s be honest. We don’t spend nearly enough time helping our kids to become financially literate.
And why not? Money is a part of our everyday lives. But, our kids won’t learn how to navigate personal finance and build wealth by osmosis. It requires intentional guidance and instruction. This is where we come in.
Let’s remember why teaching kids about money is important. Here are some quick stats:
- According to the Harris Poll in 2023, a quarter of Americans don’t have a monthly budget.
- According to “Wealth of Two Nations: The US Racial Wealth gap, 1860-2020”, economists shared the latest chasm of disparities. For every dollar the average White American has, the average Black American has only about 17 cents.
- According to Bankrate survey in 2023, only 4 out of 10 Americans can cover an unexpected $1,000 emergency expense using cash savings.
Also, research indicates money habits are established by age 7. So, let’s get into it….
Tip #1 – Discover Money Stories
First, ask yourself. What is your money story? How did you learn about money?
Spend time unpacking how you learned about money – the good, the bad, and everything in between.
Maybe you racked up credit card debt in college…
Maybe you had an unexpected expense that wiped you out…
Maybe you were scammed…
Maybe you experienced buyers’ remorse…
Maybe you’re like me and wish you had learned more about investing earlier in life…
Whatever your money story is… it’s not over. You still can win with money AND you can pass the winning plays on to the kids in your life.
Here’s a practical idea:
Read money stories and books together. There are books and resources to equip you with conversation starters which can help generate your discussions. Warren Buffet – the Oracle of Omaha – billionaire investor says: “The more you learn, the more you earn.” Check out these books to add to your finance education library at home:
Tip #2 – Make Money Real
We all know money doesn’t grow on trees, but do our kids and teens?
Nowadays, a lot of our purchases are electronic and online so our kids don’t even get to make the connection between our hard earned dollars and our purchases.
Amazon prime feels like magic – poof, your new toy is here! Voilá, here are those new shoes you ordered. Or ding – your meal has arrived by UberEats or DoorDash.
So, we have to make money real and tangible to help them understand its value. If kids have a false understanding about money, they’ll have a hard time distinguishing their wants and needs and the value of a dollar.
So, here are a few practical ideas:
- Explain household income and expenses. Explain that there are multiple streams of income. Earned income. Passive income. You can share all or a part of your budget. Take your child with you to the bank. Involve them when making a major purchase. When planning a vacation, allow them to help do the research for your accommodations, excursions, meals, etc.
- Make money real through simulations and games. In Rich Dad, Poor Dad, one of the first lessons the rich dad taught Robert was to simply play Monopoly. Yes, Monopoly. He was effectively learning about real estate and asset accumulation through play. So, break out the board games like Monopoly, Life. Watch Shark Tank on CNBC and practice making pitches and analyzing deals. This will help them learn some of the rules of entrepreneurship and business. With younger kids, you can use your imagination to play store with fake money.
- Provide an allowance at the amount that makes the most sense to you and your family. Then, teach your child how to budget with those funds. You can label jars to make the allocations tangible. If your child is older, you can also use this strategy online with the Greenlight card or a youth brokerage account with Fidelity.
- Encourage your young one to start their first business. We all know the lemonade stands. Or handmade jewelry. Kids need to learn to be entrepreneurial and self-sufficient. They need to learn to be owners and become their own CEO.
Spending and saving money are great lessons to learn, but don’t stop there! We also have to encourage our kids to Invest and Give. Investing teaches our kids what Albert Einstein called the 8th Wonder of the World – compound interest. Multiplying money. Kids need to learn to invest in the stock market – they can become partial owners of brands they use and like, such as Nike, Amazon, and more.
And, in addition to divvying up money into saving, spending, investing, let’s teach our kids how to give and give back. Money is simply a tool and it should be used to help others to help make our world a kinder place. Choose a cause to donate towards and volunteer your time – the most precious asset class of all.
Tip #3 – Plan for the Future Now
“If you fail to plan, you plan to fail.” – Unknown
- Take care of YOUR business and prepare for the future. So, what are your estate, transition plans? Do we have life insurance? What will life look like when we’re older so that we are able to enjoy life with our grown children, grandchildren. Well, we have to take these steps today. Maybe we can help contribute towards their future with investments for their advanced studies with a 529 college investment account, first property downpayment, or even future business. We must also leave invisible inheritances and invisible investments which will really pay dividends. For example, teaching our children to cook and to meal plan will help them be self-sufficient. They can learn other languages so they can compete in today’s global society as well.
- Learn and expose your child to different career opportunities. Maybe they want to be an architect? A teacher? A lawyer? A content creator on YouTube? I’m not sure – but we have to help our kids connect the dots between how money is earned and importance of how our life’s work and professional should be rewarding – not only financially, but also deeply connected to our purpose.
Remember to 1) discover money stories 2) make money real, and 3) plan for the future now.