How To Teach Your Little Tykes About Money
If your little pumpkin is old enough to go nuts in the toy aisle for "ages three and up," then she's old enough to start grasping the foundational concepts of personal finance. She's already learning how to get what she wants from you and everyone else around her, so she's plenty savvy to start learning a little about the green.
Seriously, the President's Advisory Council on Financial Capability recommends the Money as You Grow initiative with lessons for children as young as three. A report from University of Cambridge professors David Whitebread and Sue Bingham also finds that several basic concepts relating to future financial behavior will have developed in your kids by age seven.
Don't miss your opportunity to teach your little ones about cash!
Locking in some basic financial foundations before age 10 will help set your kids up to make future choices with confidence. That's important because a 2013 survey by the National Foundation for Credit Counseling found that three out of five U.S. adults don't have a budget. That study's not an anomaly. When asked five questions on a basic financial literacy quiz, 61% of Americans answered two or more incorrectly, according to a 2013 report by the FINRA Investor Education Foundation. In other words, the majority of Americans struggle with personal finance, and schools aren't going to do the teaching for you. Only 17 states require personal finance courses for high school graduation, according to the Council for Economic Education. Teaching your kids from a young age will help tip the future scale back to a financially savvy majority.
Where to start?
Money as You Grow and the Jump$tart Coalition for Personal Financial Literacy suggest some of the following.
- Grab some coins (or, as my 4-year-old likes to call them, "monies"), give them to your kids, and explain how much each one is worth. Size and shininess should help you with pennies, nickels, and quarters, but you're on your own for explaining that a smaller silver dime is worth more than a bigger silver nickel. I'm considering a congressional petition to sort that nonsense out. Using these coins, start a piggy bank with them. Establishing savings as the first financial action of your kids' lives can pay off big down the road.
- Once they've saved up, take your kids out for a snack or to a local toy store to pick out a small prize. Let them hand over the money. This should help establish the idea that money pays for things.
First and second grade
- Take your kids grocery shopping and introduce them to price comparison with items they enjoy. My daughter loves Frosted Mini-Wheats, and in a few years, I'm going to show her that daddy saves a few bucks on each box when he buys generic Wheat Frosters.
- While you're at the store, give them a few bucks for an item or two you need. Let them make the decision about what specific purchase to make, and ask them to explain their decision.
- Introduce them to the idea of needs versus wants by taking them clothes shopping for new school duds. Let them pick out a few needs like everyday jeans and a few wants like a necklace.
Teaching your kids about the value of money is the foundation of their having a healthy financial outlook as adults.
Third through fifth grade
- It's time to put them to work. Help your kids launch a small business, whether that's raking leaves or selling bottled water to parched patrons at summer park festivities. When I was 10, my dad helped me fix up an old lawnmower and build a small cart to pull it around behind my bike. I did yard care every summer from then until I left for college.
- Consider loaning your kids a little capital to get started, complete with repayment conditions and a small interest rate. This helps familiarize them with credit in a positive light, which is important because the vast majority of us utilize credit in one form or another every day.
- Open a custodial investment account with your kids using some of your own money and some from what they've saved up by working. Let them help you pick out some funds or maybe even a few specific stocks to invest in. Every few weeks, track the investment with them.
It's never too early to start teaching your kids about the money side of daily life.
Jens Odegaard is a 28-year-old father of two and the managing editor at Money Side of Life, which produces multimedia content that helps young adults understand money so they can make decisions with confidence.