One of the most important jobs of being a parent is giving your children the tools they need to succeed in life. Building relationships, sharing, being polite, perseverance. Why don’t we throw money management into that conversation?! Think about it – you make a financial decision EVERY day. This skill is just as, if not more important than any other thing they will learn in their lifetime. Unfortunately, a school’s curriculum typically doesn’t involve basic or advanced personal financial management. Challenge accepted. Let’s take matters into our own hands!
To make it simple, I’ve broken down financial literacy for kids into three areas. Budgeting, credit, and investing. Our goal is to give you one actionable item that you can use in your parenting TODAY, to help teach your child about money. Hopefully this encourages you to be thinking of ways you want to teach your children money management principles. If you come up with any ideas, please feel free to share them with us and we can spread the word through the social media. We’re in this together!
- Budgeting: One of the most important fundamental skills all humans need to learn is how to budget. How can you start teaching your children to become great budgeters at a young age? Well, if they’re old enough to get a job then it’s important you help them budget their paychecks. Capital One MONEY is a great banking app. You can be a primary holder on the account and see where every dollar is going as well as set savings goals together. Now, let’s say your child is only 7 years old and isn’t old enough to work yet. How can you teach them budgeting principles? An actionable idea is to think of yourself as the employer. Find ways for them to earn money through completing tasks or achievements in school/sports/life etc. For example, maybe your child cleans their bedroom, and they get $10 as a result. Maybe they want to buy a toy but they also want to buy a bicycle six months from now. This is a great opportunity for you to teach your child how to budget their money to get the things that they want and live within their means. Here’s another good example. Let’s say your child is 12 years old and in four years they will be 16 and old enough to drive. Teach them to think long term about their money (buying their first vehicle) so that they don’t waste it on short term wants that will ultimately become clutter. The possibilities with this are endless, as you can imagine.
- Credit: Understanding how credit works and ensuring you have strong credit is almost as important as learning how to walk. This is a tough one to teach your kids about because they can’t get access to a credit card until they’re 18. But, it doesn’t mean you can’t start teaching your children about credit management before then. IDEA: when your child wants/needs something but they don’t have the funds for it, think of yourself as the bank and your child as the customer. Explain to them that this is how it works for mom and dad too when buying items like a car or a home. When they want/need something but don’t have the funds for it, buy it for them on “credit” but they must pay the bank(you) back over time. Maybe charge a modest interest (if this feels evil you can set it aside for their future LOL).
- Investing: Last but not least -- investing. Often, we see parents set up accounts for their kids and the money gets used for their education or other major life moments but the kids never learn anything about the underlying investments. The goal SHOULD be to teach them how investing actually works so that they aren’t intimidated by it when they start earning real money. Here’s an actionable item you can use as soon as you think your kids are old enough to understand this stuff...
Open a taxable investment account and show your child what the S&P 500 is. Buy 1 share of an ETF that acts like the S&P ($SPY) and look at it together with your child every so often. Make it fun and set a goal together. Earlier I gave the example of saving money for their first car. Maybe you save that money in an investment account like this and every month you add money to it together. This will teach your child how the markets fluctuate but overtime tends to go up. By nature, children are very curious. As you pique their interest, we bet they’ll start to ask more questions on how investing works. Imagine their head start in life when they get their first paycheck!
We have a tremendous opportunity as parents and a community to invest in the future generation. Instilling these principles early on can result in a life changing impact. Let’s teach the future generations about money – together!
Max Your Dash,
Nathan Elvers