As parents, we instinctively understand our children need not only inspiration from us, but also education. We want to get them into the best schools and colleges we can afford, and find them good coaches in sports and tutors in music. The one area often overlooked, however, is financial security. This is such a problem that the Treasury Department and the Department of Education have been cooperating in recent years to assess financial literacy in U.S. high schools.
Regardless of how old your children may be, it’s never too early or too late to begin passing on sound financial principles, so one day they can also obtain financial security.
Many people can remember their grandmother saying, “Money doesn’t grow on trees.” That simple saying drives home an important point: Money doesn’t come in endless supply, so it needs to be used wisely. First financial lessons ought to be very simple, moving to more complex concepts as children get older.
Preschool: Spending, Saving, Sharing
Preschoolers or kindergartners should start learning that money can be spent, saved or shared.
Spending should be done carefully. You have to make choices about how you spend your money, because once it’s spent, it’s gone.
Saving money should become a habit. You can’t always have everything you want right away, so start with a piggy bank until they have enough to open a bank account. Teach them money can grow steadily over time.
- Sharing should be done joyfully. Money is not an end in itself. It should be used for important things, and nothing is more important than people. (For more from this author, see: Charitable Giving: Creating the Biggest Impact.)
Grade School: Building Good Habits
It’s easy to underestimate just how much our growing children are able to learn. If your third grader can handle long division, and by seventh grade boggle you with algebra homework, they can surely understand foundational principles in financial security. In grade school, teach your children the following:
- Learning to handle an allowance. An allowance only works if you are rigid and only give your children a certain amount. If they can spend it all and then come back for more, it’s meaningless as a teaching tool.
- Realizing the value of a dollar by hard work. Linking their allowance to chores stops kids from having an entitlement mentality, and encourages ideas for earning a little extra. Many successful entrepreneurs have started out young with their own little business schemes.
- Setting goals and saving for financial growth. The sooner you save, the faster your money can grow through the magic of compound interest.
- Creating and implementing a budget. Sit down with them and work on a plan for what they’re going to do with each penny of their money. Show them how it works, and help them get excited about what they can achieve as they stick to their plan.
- Becoming a smarter consumer. Teach them how to do comparison shopping. They’ll quickly learn never to jump at the first option until they’ve shopped around.
- Including benevolence wisely in finances. Children need to be taught to give to others in ways that really help and don’t enable people, and they need to be taught to evaluate charities so they don’t fall for scams. (For related reading, see: How to Pick a Charity.)
High School: Complex Financial Ideas
By the time they’re ready to leave the nest, you want your children equipped for survival in the world. Before they’re headed out the door to go to college or earn that first paycheck, they need to learn about:
- A budget. If you’ve taught them well, they should have one in place at all times.
- Some clear warnings about credit pitfalls. If your kids go to college, they are going to be met their first day on campus by people offering them free t-shirts and music to sign up for a credit card. Credit cards almost always end up being used by college students for impulse buying, and it’s a huge trap that gets young people in a debt cycle.
- A retirement plan. The best advice you’ll ever receive about investment is to start early. Maybe you got started later in life, but you can change that for your children with the right education. They should contribute to a retirement plan from their very first paycheck.
Lead By Example
How fiscally fit are you? Are you doing the things you need to do to get where you want to be? Our kids are watching us all the time, so we teach them more by our example than by the things we say. Talking to your kids about money, buying them books or enrolling them in online courses are all good things to do, but if you don’t live your own life by the same important principles, it’s going to sound like hollow advice.
(For more from this author, see: 3 Financial Torpedoes That May Sink Your Retirement Plan.)