Looking for a summer project for your children? Teach them financial literacy this summer… and next summer, and the following summer, and so on.
There is a range of sophistication of financial literacy, and we can help our children learn the basics early, and then help them grow and feel comfortable with the concepts and jargon over the years. Normalizing conversations about money, budgeting, and planning can be powerful tools to allow children to realize that financial planning is akin to other positive habits like good diets, getting enough sleep or routinely doing homework.
Good old board games are an excellent first step in teaching financial literacy to young ones. Even games like Candyland: your card says 3 steps, and you can only go 3 steps. As children get older, the obvious choices are Monopoly, Life, or Yahtze. The power in these games comes with your narrative about following the rules or even helping your children plan a strategic move a few rolls of the dice in advance.
Teach by Example
Adopt a family philosophy and teach by example. Establish a rough guideline for how much money is appropriate to save, spend and donate.
Parents routinely provide an allowance to children, but that can be a slippery slope if there aren’t parameters set around how the child manages that money. Help them think smartly and positively about the benefits of saving, spending as well as donating. The donating piece can be a very small percentage of the entire pot, but it can help them learn the emotional reward of helping others.
As children get older you can reinforce that you also manage your funds according to the family philosophy. Point out that family vacations are paid for out of the “spend” bucket of your income but that you also are saving for future costs like education, retirement and even annual taxes.
Open a Savings Account in Their Name
Introduce your children to the active process of saving, which is usually sometime in middle school or early high school. Seeing a statement with numbers attached to their name can be empowering. Some children quickly become fascinated with concepts of interest and accumulating wealth, which in turn builds drive towards positive activities (summer jobs or focus towards academics) that helps them increase their savings.
Similarly as your children get older, you can introduce them to some of the savings vehicles you use, whether its an employer-based 401k, an IRA, mutual funds, bonds, etc. Help them understand the basics, introduce them to the various ways to save and the pluses and minuses of each option. These ongoing conversations can help them realize there is a rhyme and a reason for each savings tool in the toolshed.
Include Children in Decision-Making
Create a budget for your summer holiday and let the kids implement it. Give them choices on how to spend the allocated budget. See a show or go fishing? Stay in a more expensive hotel on the beach or stay a few rows back to have extra funds for daily activities? Let children be part of the decision-making process teaches them that there are usually choices to be made and they can have a say in those choices.
Over time, the goal is to use words like budget, plan, savings, and contribution when appropriate. All of these conversations can set them up to have a well-balanced and strategic portfolio of savings well into adulthood.