Dollars and Sense: Teaching Kids Financial Literacy
How to help your kids understand savings, budgets, and how to be thrifty.
We don’t want our children worrying about money — we want them enjoying their childhoods. But financial literacy should be part of their education. Even if you’re no economics whiz, here’s how help them be smart about money.
When To Start
There’s no absolute answer. Mark Blair, a certified financial planner and registered investment adviser who’s president of Blair Wealth Management in Radnor, suggests kindergarten as a solid entry point. Start with the basics, he said: Kindergartners can understand money exchanges for things like groceries and toys, while a middle school-age child can better understand more complex budgets, including extracurricular events and electronics.
Piggy Banks and Savings Accounts
Piggy banks are an amazing financial training tool for young children. You can start them as young as you’d like. Whenever your children receive money, whether it’s spoils from the Tooth Fairy or a birthday gift, encourage them to keep it in their piggy bank.
The transition to actual banking might occur around age 8 or so, when they open their first savings account. Kids need a parent there for any withdrawal until they’re 18, and in the meantime, they can keep using their piggy banks as a building tool for their savings account. Blair suggests adding up the totals from the piggy bank each month and placing them into their savings account.
Be sure to keep your child involved when dealing with their bank accounts. Let them see how much interest has built in the time they have had the account, ask bank employees to explain different aspects of the child’s account to them, and, when they’re ready, let them open a flexible spending account.
Blair said a 529 college savings account is a great option. The interest earned on this account isn’t taxed if the money is used for their future education expenses. You, as the parent, will own and control this account, but your kids can watch the money grow. This also helps them understand the full cost of college early on.
Fight Flat Allowance
A recent survey by Country Financial revealed that 68 percent of Americans believe children should receive an allowance for completing chores, of that percentage, 54 percent gave their children allowance to teach children the value of earning money, 22 percent wanted to teach their children the value of a dollar in a more broad sense, and 12 percent wanted to teach their children financial independence.
Whatever your reasons, giving children a flat weekly allowance isn’t always the best bet, particularly if their chores change up week by week, or if they’re not doing chores at all. You don’t want your child to become petulant the day allowance rolls around and they’re expecting something from you that they might not have earned. That being said, an allowance is a great way to teach children how to set goals and to practice budgeting.
Blair recommends giving kids an allowance that’s part of what you’d normally spend on their snacks, treats, and entertainment, plus some money to save, invest, or donate. The amount should increase as your child ages. Give them different ways of earning their allowance so they understand its value. Tasks that can progress from baby steps work well, like laundry. Start them at first with adding soap to the laundry, then move up to learning to work the machine, then have them do their own laundry independently.
Want to haggle? What is a load of laundry worth to you? $5 or $3? What about lawn maintenance? Offer your child the going rate for specific chores, as a form of “income,” rather than an “allowance.”
Bring them Shopping
Any shopping is a chance to teach your kids. Bring your child along, and talk to them about what you’re choosing, and why. Look at price per unit as opposed to the price sticker on the aisle for the whole item, for example. Teach your child to purchase by volume to save money in the long run on items that don’t perish as quickly, like peanut butter or canned goods.
Be picky: you want them to know the difference between quantity and quality. If this means shopping at different stores to get the best price, it’s well worth it in the end for your children — and for you.
Explain Money, and Be a Model
Do you sit down every month to put together your household budget? It’s the perfect opportunity to talk about money.
If you’re a credit card shopper, this doubles as both a time to teach your child and to get into better habits for yourself. Take your receipts home and add them up into the monthly budget. This way, children aren’t just seeing you swipe a card to magically make items appear. Be sure to pay off your credit cards in full each month, and let your children see you do it. Credit cards are also great ways to build up points towards miles for family travel — always a great perk! Be sure to pay off your credit cards in full each month, and let your children see you do it.
Make the monthly (or weekly) budget session fun by having snacks at the table and a tradition of watching a movie afterwards. Show where you spent money on them, on yourself, and show them the bills. If they’re older, avoid showing your salary and income, but instead focus on percentages of output.
Make good financial choices and share them. They’ll model their behavior after yours, Blair said.
“Let your positive emotions and actions around money serve as an example to your child in her own financial successes,” he said.
Apps to Help Children Learn the Value of a Dollar Early On:
Try one of these easy-to-use apps to cement the lessons you’re teaching your kids. They might even think it’s fun.
Country Financial ChorePal App
Photograph by Jean Goins.
This article appears in the spring 2017 issue of Philadelphia Family and Main Line Parent. Want your copy? Join our community as a Supporting Member to subscribe.