Whether you have younger brothers or sisters, are a teacher, or have your own children someday you are going to have to talk them about money. Investing in a child’s knowledge of money is the ultimate way to provide for his or her financial future.
Here is an example of how one family taught their high school age son about money:
We grew tired of doling out small bits of money daily for school supplies, trendy adolescent clothing and athletic shoes, haircuts, friends’ birthday gifts, movie outings, CDs and other teen accoutrements. We started to feel as though we were an ATM, instead of loving parents! Finally, we created a solution. We taught our son about budgets. We asked him to list his anticipated yearly expenses. We then requested that he divide this number by twelve to calculate his monthly allowance. As in the business world, we did some negotiating to determine an amount for monthly allowance. When his peers heard that he was receiving much more allowance than any of them, they became envious. But our son’s allowance needed to cover his personal expenses.
For the first few months, he was short of money. Then he gradually became more financially savvy. When he offered to return the surplus to us, we complemented his honesty, but insisted he keep that money. Consequently, we were able to teach him some basics about saving and investing. When his sister entered high school, she had the same success with our family budget program. We noticed she even clipped coupons. Before she had entered college, she had already accrued a small but significant fortune.
Try some of these activities at home or in the classroom.
1. Do a magic trick.
Teach children how to turn $16,000 into $1,600,000. Invest $2,000 annually for eight years, starting at age eighteen, in a mutual fund that earns 10%. (You’ll need to search hard to find such an investment in today’s economy.) Leave it there. At age sixty-five, that investment should be worth over $1,600,000. Teach children about the variables that can be adjusted to earn more than this amount such as starting younger, ending later, investing for more years or at a higher rate of return.
2. Perform another magic trick: Make your money disappear.
Teach children about credit card debt. Have your child suggest something expensive he wants to purchase. Inform him that he will pay with a credit card. Explain what a credit card is and how it works. When the hypothetical bill arrives, you can explain how interest rates work. Show him that if he only pays the minimum it will take X amount of time to pay off the bill. Hopefully, your child will ask “Why would I want my money to disappear?” If so, then he’s learned the lesson!
3. Keep current.
Talk money and business current events. Ask kids questions about companies with which they are familiar, such as their favorite store or food.
4. Make it fun.
Play money board games with kids. Ask them about strategies they use to play and win the game. Learning and fun should always go together.
5. Create a Budget Game.
Create a game. Give each player five different cards: a specific monthly income, house mortgage or rent payment, number of children and cost per child, regular expenses, and unexpected expenses such as a medical bill or amusement park vacation. One player may earn a doctor’s income and another player may have a cashier’s income; one player may have several children, another may have none. Have them calculate their monthly budget based on these cards. Most of the players will find themselves short each month. Discuss ways to make the budget work such as reduce expenses, postpone the expensive vacation, or get a higher paying job.
6. Create a game to test their money knowledge.
Design a game, like the popular TV game show. Make a five-by-five grid and create five categories and five words within each category. The idea is for them to ask the question that goes with each word.
For the category “Biz Talk,” the word might be “inventory.” The question might be “What is the stuff businesses sell?”
“Bill Gates” would be in the section “Who’s Who.”
Have fun with this; it’s your opportunity to demonstrate your creativity.
When it comes to being money smart, children often learn best from example. Teaching children to be money savvy is a worthwhile investment. Hopefully, they will formulate a lifetime of smart money habits from some of these activities.