It can be tiring to say ‘no’ when your children ask for bubble gum in line at the store, for a new toy when you’re grocery shopping, or for other miscellaneous expenses. If only your children could understand how money works, and the importance of saving. Then maybe you wouldn’t always have to be the bad guy.
Much like teaching a child phonetics so that they can read, we need to teach children the basics of finance so that they can become wise stewards of money. Financial literacy for kids is an important part of teaching our children to become active contributors to society. In the big picture, it’s not just about how often they ask for candy while you’re in line at the store. It’s mostly about giving your child a financially secure future.
We have outlined five important lessons on financial literacy for kids. Incorporating these concepts into daily tasks and teaching moments will prepare your children to effectively manage their finances.
Not everyone will achieve the entrepreneurial level of Steve Jobs. But that doesn’t mean we can’t foster a love for new ideas and smart innovation in our children. Fostering entrepreneurial development is a great way to teach financial literacy to kids.
A prime example of this is Warren Buffet. At the age of 6, Warren purchased a pack of gum and then sold individual pieces to people in his neighborhood. This simple business structure helped Warren understand the principles of entrepreneurship and hard work. At the age of 11, Warren’s dedication and business mindset lead him to work at his dad’s brokerage business.
Children don’t need a regular job to learn the value of hard work and profit. Encourage your kids to pursue entrepreneurial ventures such as lemonade stands, lawn mowing, baking, etc. Even if they fail at first, let them experiment with demand, marketing, and sales in their small business ventures. This will allow your kids to earn money while learning about financial principles.
In order to combat entitlement tendencies, encourage routine giving and volunteering in your family. This will help your children build empathy and understanding for others.
As a family activity, research local nonprofits and charity organizations. Help your children become responsible donors by looking for organizations that measure and report sustainable impact. Then as a family, decide how much and how often you will give to the organization. Depending on the organization, you may be able to set up an appointment to physically help them through giving of your time and volunteering.
Financial literacy for kids means teaching children the difference between credit and cash. The nature of credit cards often leads to individuals spending more money than they actually have. This ends in high interest payments and debt.
Encourage your children to set aside a certain percentage of all their income. Then, create a visual tool to illustrate the principle of saving. This could be in the form of a piggy bank, clear jar, play store, board game, or even a real savings account. If you choose to set up a savings account, you can review the statements each month to help them understand the principle of interest.
Financial literacy for kids starts with the books you bring into your home. Childrens’ books can be a useful tool for teaching kids about money. Choose stories that include a strong moral message and learning experience. Remember, children absorb much more information than we sometimes think, so don’t be afraid to read books that seem above their current level.
The internet is full of books on financial literacy for kids. At McFie Insurance, we have created a few children’s books that we believe help teach important financial lessons. These stories were created to give our clients a resource to teach their children about financial literacy. Each of these books are available on our website for purchase.
Wealth is more than money. You should eat right, make good choices, and pick quality friends. What I Heard In The Hall offers valuable life lessons for children of all ages. Written and illustrated in a “Dr. Suess-ish” style, this book is sure to entertain audiences anywhere.
A book written for children and parents too! Based on a true story about Great, Great Grandmother and her wily neighbor, this book not only captures the attention of all ages, but it also teaches a real life lesson about wealth, giving, and honesty. The end includes discussion questions to facilitate further learning and discovery.
Effectively teaching kids about money starts with a well-informed parent. Seek out additional opportunities to study topics in finance, current investment strategies, and entrepreneurial tips. Then when your children have questions, you can be a trusted source of guidance and wisdom. Your example will also influence their future levels of interest in personal financial management.
After your children learn how to make money and save money, they can start learning about how to invest money. The basic principle of financial literacy for kids incorporates delayed gratification as your assets build value.
My husband, Tom McFie, and I, taught our kids the principle of delayed gratification at a young age. We would give them between $100-$500 dollars and let them walk around with it. They weren’t allowed to spend the money because it was ours, and at some time we might call upon them to produce it, perhaps even in a check out line.. They learned the principle of having money but not needing to spend it. This is a crucial lesson to learn for long-term wealth building.
Whole Life Insurance is a rewarding type of long-term wealth that few people fully understand. Whole Life Insurance offers a death benefit as well as the ability to build cash value. This cash value can be leveraged like home equity when making purchases that require loans.
Although children cannot invest in whole life insurance, parents who personally create a policy have the ability to pass on a financial legacy to their children. And if your children know how to handle money, you can rest assured that they will put the legacy to good use.
Parents who learn the value of a whole life insurance policy can encourage their young adult children to set up an account as soon as they are able to financially. This is a great way to help your child start building wealth in their early adult years. In addition, younger, healthier people receive lower premiums and can use the cash value to avoid high interest loans.
Children are never too young to be introduced to these lessons on financial literacy for kids. Start with the small things such as reading books, starting discussions, and pointing out your own smart financial choices. As they grow up, your children will be prepared to seize important opportunities and become productive members of society.