If the Great Recession taught us one thing, it's that we all need to be a bit more mindful of our money. And as parents, one of the smartest things we can do to help the next generation learn from our mistakes is to start educating our children early about personal finance.
John Lanza, chief mammal at The Money Mammals, suggests we start talking to kids about money when they're in preschool (after all, they're already being bombarded with advertising that's encouraging them to spend, spend, spend). Borrow a page from the advertisers and make your "share, save and spend smart" message just as engaging.
"We know that exposing our kids to reading and writing at an early age is essential, because we now know it helps build a strong foundation for later learning. The same idea applies to money smart learning," John adds.
Here, John offers advice, resources and encouragement for getting the conversation started.
What are The Money Mammals?
The Money Mammals help make financial education for kids 11 and under fun.
How do you make financial literacy entertaining and engaging? Why was that important to you?
When our now 11-year-old was just a baby, my wife and I were talking about what we wanted for our kids. One of the first things we knew we wanted to teach her was to be money smart. I researched what was out there and found virtually nothing that made the topic fun for kids. I had previous experience in developing children's entertainment, so I knew it would be much more effective to make learning about money engaging rather than too precious or preachy.
Interestingly, as I looked further into the subject (and despite the lack of entertaining materials), the more it became clear that starting the conversation with kids early was the key. Since we started the company back in 2005, even more research has been done to confirm that our "teach them early" approach makes sense. In fact, this recent Cambridge study finds that money habits are formed by age 7.
What strategy have you found works best for talking to kids about money?
Parents need to get kids excited about money learning with engaging materials so the kids are primed for a workable system to put the principles into practice. That's why we do what we do with our DVD, books and online materials. Then, parents need to give kids autonomy over their money early, letting them learn to make choices and even to make mistakes. We started with an allowance at age 5 for both of our kids, and we advocate that for all children. Our kids make choices by putting some of each weekly allowance in their Share, Save and Spend Smart jars. Parents can get more details on how to setup an effective allowance on this video blog post.
What strategies seem to fail?
The biggest failure I see is that parents wait to start teaching kids money smarts until middle or high school. That's just too late. It's also a mistake thinking that schools are going to cover personal finance. Financial literacy is by no means part of the standard curriculum at most schools.
How should the lessons evolve as the child gets older? What lessons are appropriate for ...
Exposing preschoolers to money is easy. You can give them a dollar or two to purchase something on a store trip. Have them hand the money to the clerk and receive the change. This can help them get "money comfortable." In fact, it's not a bad idea to use cash on your trips so they see money exchanged rather than just a card being swiped, which is essentially magic to them. Of course, parents can also work with them on coins, money recognition and, of course, basic counting. Thrive by Five is a solid resource with simple lessons for parents as well.
Beginning with some type of allowance in kindergarten, you should give kids autonomy over their money. They are going to make spending mistakes. My grade-school-age daughter bought a collectible set from a popular brand (we'll leave the name out). Within a few weeks, it was more junk on the floor to her. She wasn't playing with it. She bought it because a friend of hers had the same set. This led to a conversation and a realization about money wastefulness. Of course, this was by no means her last mistake, but it was a relatively inexpensive way to learn that it might have been better to wait a week to see if she really wanted that item. It was certainly better than learning the lesson more expensively as a teen or adult with more disposable income.
Next, as soon as possible, start kids saving for a goal. By way of example, our daughter saved for a $20 scooter over an eight-week period as one of her first goals. We've likely all seen the marshmallow study by Walter Mischel that underscores the importance of teaching kids about delayed gratification. There is no simpler way to do this than through allowance and the idea of saving for goals. Of course, as they get older, they can increase the size of their goals.
... Middle school, high school and beyond?
We are pretty focused on younger kids, because I believe we spend way too many resources trying to break bad habits too late rather than trying to build a solid foundation early. So, I'll just point folks to Jump$tart, the K-12 financial literacy resource that aggregates content for kids in that older age range. We are proud to be a part of this great organization, and Jump$tart has a clearinghouse of great resources available from this non-profit.
How do you think the Great Recession has impacted parents' interest and desire to teach their children about money?
When we started our business before the Great Recession, there was strong interest in what we were doing. However, with families just now recovering from the Great Recession, we are seeing a huge jump in interest in the topic. We are also seeing lots of requests for information about teaching money smarts at a young age. If there are any silver linings to come out of the pain inflicted on so many, the teaching of money smarts to kids is certainly one.
What advice do you have for parents who don't feel they have the financial savvy to talk to their kids about money, but who know it's important to do? Where can parents learn the basics?
One of the biggest discoveries on my journey with The Money Mammals is that by distilling the message down to the basics like we do - Needs vs. Wants, making smart money choices, and learning about delayed gratification - we make it SO much easier for parents to deal with the subject. You don't have to understand "The Rule of 72" to get started. Sure, you may need to adjust some of your own behaviors and attitudes since kids tend to do what we do rather than what we say, but the basics are pretty easy for anyone to teach.
Where might parents find teaching moments throughout the day when it comes to their kids and money? How can they get their kids involved more?
There are teaching moments available everywhere. For example, when you're at the store, show kids the choices you make as you comparison shop. It's so easy to do this now since most stores display the unit price. Unless you show them what you're thinking or doing, they won't see the smart choices you make. Although I advocate for giving your kids money autonomy, that doesn't mean you shouldn't step in and advise. For example, if they are begging to buy something you're almost certain will end up in the trash next week, make a rule that they have to wait a week before making the purchase. The slight delayed gratification is a good lesson to learn early.
What are some of your other favorite tools and resources for helping kids become financially literate (outside of The Money Mammals, of course)?
This is a great question. In fact, I wrote a recent blog post about four of my favorite resources. I really like FamZoo.com, as I've moved my oldest daughter to that platform. Now her money choices are done in online "jars." She's getting comfortable with virtual money. The program is easy to use and, unlike some of its competitors, it's not aligned with retailers that might encourage spending. First National Bank of Dad was one of my absolute favorite books on the subject. David Owen hilariously talks about the importance of giving kids money autonomy. There's also that terrific piece of research by Networks Financial Institute that I cited earlier - a really interesting paper with great ideas. It makes a terrific case for the importance of starting early. Last but not least, there's Jump$tart, the K-12 financial organization that aggregates organizations across all ages which I also mentioned above.