The holidays will be over before we know it. We’ll collectively transition into making resolutions and planning for the New Year. If you’re a reader of this blog, I imagine that you’re already incorporating money-smart lessons into your plans. I’ve written this to help you get a head start on your youth financial literacy goals. This post is more practical than philosophical, and although this list is by no means comprehensive, these are effective techniques that I’ve used with my kids (and other parents I know have used with theirs) from which you’ll benefit in your planning. I’ve included age ranges in the list to further help you. As always, please let me know how these work for you if you decide to try one or more of them.
- Start a real allowance (Ages 4+). An allowance is essential. It’s where the foundation for financial responsibility starts. If your kids are older (10+), have them draft a spending plan for the next year. In our case, our 12-year-old identified the number of birthdays for which she’d need presents, lunches she might want to buy at school and clothes she might want. We tacked on the monthly mobile costs for her new phone (service only). It’s really important to provide a structure to allowance. Asking our daughter to be responsible for coming up with a plan actually helped her to think a little more long-term. It also guided her to develop negotiating skills. (Be careful of that one!) The amount she receives may seem like a lot, but please understand two things. First, you may easily be spending more than this amount if you actually add up what you dish out for these items. Accounting for these expenses via our daughter’s allowance has the added benefit of teaching her financial responsibility. Second, feel free to adjust these amounts to make them work for you. Every family is different. We also encourage our kids to track their money. We use FamZoo to help our kids with this. Other options include Zefty, Piggy Bot, Family Mint and Three Jars.
- Have them set a savings goal (Ages 4+). Setting a savings goal is something any kid can do, and it is so powerful. Remember to be flexible and that the time horizon should correlate with age. A four-year-old shouldn’t be saving for a goal that will take more than a few weeks. Also, their goals may change, and you should allow for that. For example, that hoverboard that they just HAD to have catches on fire when charged. Maybe it’s ok to reset that goal. I’d say one rule is that they must allow a few weeks before changing a goal so that you can avoid allowing changes that are too short-term.
- Help them give to a charity (Ages 4+). If you require them to put money into a share or charity jar (or bucket) like we do, that money can often be ignored. Help them find a charity to which they can donate. This was important enough to me that I wrote a book on helping a child find a charity that’s meaningful to him or her. Here are some additional ideas to help your kids use their share jar wisely.
- Talk to them about invisible choices you are making (Ages 7+). Don’t let your invisible choices go unseen and unheard. For example, your kids will see that you purchased a $25,000 car. They don’t see that you chose that over a $45,000 luxury car or less expensive car that gets lower gas mileage that might cost you more in the long run. (Quick note: This was an idea I read about years ago, but I cannot find the source.)
- Let them make their own lunch (Ages 9+). This was a huge change for us, and the kudos for the idea go to Ron Lieber for the suggestion from his book The Opposite of Spoiled. By making their own lunches, our kids learn that they can save money on purchased lunches. (We buy the homemade lunch “supplies.”) It makes them responsible for the quality of their own lunch. No more (well, less) complaining. It also removes some of the morning drudgery for you. This is certainly one of the best parenting moves we made all year. Just thinking about it puts a smile on my face.
- Help them buy stock (Ages 10+). Start by helping them brainstorm a few companies that they like. From that list, find one that’s publicly traded. Help them buy a couple of shares, and show them how to track the price on Yahoo. Soon they’ll be off and running. For our 12-year-old’s first purchase (Adidas), we contributed half of the $100 purchase price. She’s had fun tracking the stock. (Of course, it helps that it’s gone up.) Don’t overthink it like we did. The purpose here is just exposure to the markets. We’ve already had conversations about commission fees, following stock news online and long- versus short-term gains. This has been a great start for her, and it happened much earlier than when I learned about the financial markets and stocks.
I hope these six relatively simple pieces of advice help you and your family on your quest to raise money-smart children. Financial education for kids is something I’m always thinking about, so I’d love your feedback on this and any of my other posts. Thanks.
John