Teaching your child how to become financially savvy, is a smart move, considering the projected costs of living by the time most of our children reach adulthood. Like most aspects of child rearing, this needs to start early, and continually be reinforced as they grow. So, how do you begin creating an appreciation of money and its uses in your child?
It all starts with the concept of saving, and grows from there. I taught my two boys, beginning around age 5, using gardening as my teaching tool. Using the analogy of planting seeds and watching them grow, I set up a pair of jars and added coins. I explained that just like seeds, money grows when it’s nurtured and sheltered. One jar was our “free” jar. Money was added to both jars equally, but money from the free jar could be used upon request. The “growing” jar however couldn’t be taken from, but added to only.
Imagine their faces when one morning they discovered the free jar was empty, and the money jar was two thirds filled. That lesson wasn’t lost on either of them, and they became much more aware of how spending without saving emptied out their reserves very quickly. When they turned 7, I introduced the idea of savings accounts they themselves could contribute to. I explained that placing money in the bank offering a decent interest rate could help their money grow. And that the more they saved, the more it would increase. Many parents or grandparents open savings accounts when a child is born, which is great. But it’s useless without an understanding of its value as a tool.
These are critical concepts parents overlook in building good character traits in their children. Encouraging a healthy respect for work and savings creates a child less likely to be demanding and unappreciative of the things they have or want. It helps them learn to set concrete goals and plan ahead for the future. There is nothing wrong in having a child work for a desired toy or item they want. What this does is prepare him/her for the realities of adulthood. Too many of our children have had so much just handed to them, that by the time they’re old enough to be on their own, they’re clueless. My boys have swept porches for pay, taken care of yards and done other jobs for pay since they were 6 years old. They earn most of what they want, and appreciate it so much more.
Watching other children get handed things without earning them, fills them with contempt, because they watch them routinely treat those “things” like garbage, with no real idea of value. How many of us have watched the 20-30 set out there spending like there’s no tomorrow, wearing their worth on their backs or in the vehicles they drive? If they have children they will be wearing the latest shoes and Baby Phat outfits, but if Dad and Mom become unemployed, there’s nothing to cushion the huge fall they’ll take. Sadly they learned this behavior from their parents and relatives.
Contrast this with children raised with goals in mind and a knowledge of how to run their finances in a sane and sensible manner. Usually they either have, or are about to buy their first home or other real estate. They invest in mutual funds, CD’s and the stock market, buy annuities and generally have an early retirement plan in place. They didn’t get there by accident.
Parent’s who want to raise money-wise children communicate and educate them to understand all the differing financial options available to them. They reward the ethics that motivate fiscal responsibility, by making matching contributions to savings accounts, helping them buy that first CD, or gifting them with a mutual fund or an annuity, while they are young. Together they discuss wanted purchases, pointing out pro’s and cons, even the quality of the object, before buying. They use the internet to research new game systems, cars and other big ticket items to help them become informed consumers.
Instead of hiding financial difficulties, they become part of the family discussions on how to deal with things that can happen to anyone: the sudden loss of a job, major illness or another catastrophic event. Monthly budgets are explained and the child quickly becomes knowledgeable about fixed or recurring expenses, and the idea of paying yourself first in savings. Get literature, or have someone who understands the varying investment options speak with your child, and help them gain the necessary understanding needed to make the right choices for their future.
The best information you can give your child is how to handle credit responsibly. Make certain they understand interest and the danger in using credit unwisely. The new credit cards that parents can preload, are one very effective way in teaching them how to handle credit. If they run out before the next pre-load is due, tell them too bad, next time plan better. This of course presumes your child has a decent work ethic and has shown some financial responsibility all along.
Finally, once you’re certain your child has a good understanding of finances, ask them to sit down and map out their short, medium and long-term goals financially. Mid to late teens is excellent timing for this. If college is not a desired goal, then discuss freely their best options for employment, whether it’s with a union sponsored apprenticeship, the Armed Services or the State or Federal government.
In creating financially savvy children, you are giving them the lessons and tools to enter adulthood better prepared to survive in a highly competitive world, and helping to ensure they can stand on their own two feet. Which is what any parent worth their salt really wants for their children and society. A healthy, and highly productive member of our world, and not another drain on both yourselves and the system.