One of the questions our team is frequently asked is “how do I educate my kids about money?”.
For many, wealth planning involves preparing your heirs to be good stewards of your wealth and to carry on your legacy after you’re gone. Furthermore, it is most parents’ hope that their children will grow up making smarter decisions than they did, and perhaps avoid some of their own mistakes. The goal of this series is to help educate the next generation on the most foundational pieces of wealth planning and to create a launchpad for your family to discuss values surrounding money.
When we talk to our clients and their families about financial literacy for the next generation, we find it useful to break down the conversations into four life stages:
1. Grade school
2. High school/preparing for college
3. College/early career
4. Building a family (marriage, children, etc.)
This post will discuss the first group – grade school age children.
This age group is especially impressionable and teachable, yet often overlooked. The key is to find age-appropriate ways to discuss money, using terms that are easy to understand and not overly abstract.
The 4 best tools for this age group are:
• A piggy bank – or preferably a clear receptacle for cash and coins
• Demonstrating opportunity cost
• Giving to a charity
• Setting up an earned allowance or system for earning money
One of the first lessons we teach kids is that money is to be kept in a safe place; this is where the famous piggy bank comes in. It is the most basic way to instill a sense of value and responsibility surrounding money. We all envision the classic piggy bank, however there is (typically) one problem: you can’t see the contents change over time. So, if you want to take this element a step further, choose a clear receptacle. The visual impact of seeing the level rise as they save and lower as they spend is much more powerful and concrete to a child versus simply talking dollar amounts.
The next concept to demonstrate for a child is the idea of opportunity cost. If you’ve ever stood in the toy aisle trying to bargain with a child about choosing just one item, you’ve already brushed up against this lesson. To take the demonstration a step further and make it more intentional, consider an exercise like this: Plan a trip to the dollar store, out for ice cream, etc. Give your child an allotted dollar amount (ex. $10) and explain that that is their budget for the outing. Help them understand the cost of the things they want but give them freedom to make the final decisions on how the money is spent. Don’t forget to reminder them that they don’t have to spend it all; the piggy bank is waiting at home for anything that might be leftover. Allowing a child to experience the effects of their decisions first-hand, including the decision to save rather than spend, is far more impactful than simply explaining opportunity cost.
The third item we want to talk about is the importance of demonstrating charity and giving. This can be done in so many ways, but a great place to start is simply talking about the causes your family supports and why – where do the funds go and how are they used? From there, you can begin to get your child involved in the giving process. For example, have them help pick out a toy to donate to charity, explaining that it will be given to another child in need. Bake a batch of cookies together and deliver to a neighbor, allowing them to witness the positive impact it has on that person’s day. Children learn by what is demonstrated for them, so allow them to see you using your time and money to help others. The values embedded in those memories will stick more than you realize.
The final tool on this list is the implementation of an earned allowance, or the opportunity to earn money by doing age-appropriate chores. This is a classic example that many of us remember from our own childhood, but it endures for a reason. It helps children connect the dots between hard work and reward, giving them a sense of ownership and pride. Every other lesson becomes even more impactful when the money they’re saving, spending, or giving away has been earned.
We hope this inspires you to begin weaving financial literacy into your child’s life and sparks some ideas about how to do so in age-appropriate ways. If you ever have questions or want to discuss how to implement these exercises, don’t hesitate to contact Amanda at 414-644-0061 or amanda@oharewealth.com.
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