Teaching children to manage money is more important than ever in a world where toddlers use touch screens and cash comes from machines. Early exposure to numbers builds math skills that they use throughout life. And as a recent Northwestern Mutual study shows, financial responsibility could be one of their most important lessons.
Our children’s future financial security will depend on their ability to plan and manage their own finances. Yet few schools emphasize financial subjects, and even adults have trouble focusing on those priorities in their busy lives. Our 2013 Planning and Progress Study found that six in ten (63%) Americans say their financial planning needs improvement and the number one obstacle is not having enough time (24%). The majority (69%) say the pace of society makes it harder for them to stick with long-term goals.
What can adults do to put children on the path to a strong financial future? Embrace the role of financial coach and start early to teach them about math and money. Inspire their natural curiosity with day-to-day opportunities and teachable moments, like these strategies for toddlers to teens:
Start early to help children build good habits and understand concepts that will develop further as they grow. Teach toddlers to collect money in a piggy bank until there is enough to pay for a favorite toy. Reward their efforts by opening their own bank account when they are in elementary school. Explain how the bank works and how it helps you handle money, and you’ll prepare kids to manage their own savings, checking or credit card accounts.
As soon as children can add, subtract and count money, offer them some personal experience in managing it (and learning what happens when it runs out). Whether they have a small amount to spend on vacation, or a weekly allowance to manage over time, allowing children to make their own financial decisions helps them realize how to spend – and conserve – their dollars. Older children can be taught about the components of the family budget as part of understanding what’s involved with living on their own.
- Cooking and Dining
Explore the many math and financial lessons in food-related activities, from having young children count recipe ingredients to enlisting older ones to create shopping lists and look for coupons. Teach them to resist impulse purchases by shopping for only what’s on their lists. Put teens in charge of budgeting, planning, shopping, and preparing meals. And when you’re out in a restaurant, build another life skill by asking your older student to calculate the tip and handle the money to pay the bill.
In a world focused on spending, teach children what it means to earn money. Explain the connection between going to work and making a living, and encourage kids to earn their own money by selling items, helping at home or assisting neighbors. Encourage them to be involved in youth groups, scouts and Junior Achievement that reinforce valuable economic lessons.
When opportunities present themselves, explain to children how you use insurance to protect against risk. If you have a car accident or homeowners insurance claim, use it as a teaching moment. When you meet with a financial representative, tell children in simple terms how this ensures the family will have money when they need it, how you are saving for their education and how a permanent life insurance policy is building value for their future.
Though investments can be complex, seize the opportunity to show children of all ages how their funds can grow over time. With an enthusiastic teacher, even elementary students can understand what it means to own stock in companies they care about. Teens can collaborate in managing their own accounts with an adult mentor, and learn with educational software and teaching tools.
- Paying Bills
Be sure to talk to children about the importance of managing monthly obligations. Help them understand that their home, electricity and telephone have a cost by explaining how you pay monthly housing and utility bills. When children begin using cell phones or driving cars, consider having them pay for some of the expenses associated with these privileges.
- Practicing Daily Discipline
Model good financial decision-making and take time to share the reasons behind your financial choices to help children understand how daily habits can have lifelong impact. Explaining why you opt for a less-expensive activity so the family can save for a rainy day helps children have realistic expectations, form positive habits and prioritize as adults.
- Planning and Saving
When the time is right, talk about the idea of planning for future goals. Help children understand that allocating savings into categories helps them plan for the future. One option that can work even for young children is to use four different banks: one labeled “spending” to be used soon, on everyday things; one for “saving” money for larger items later; one for “investing” money that will be used several years from now; and one for “giving” money to help others.
Involve kids in shopping smart for day-to-day items and teach them strategies to get more for their money. Young children can learn to compare prices in the grocery or toy store and later be responsible for choosing their own clothes or school supplies within a fixed budget. Computer-savvy students can help research the features and prices of big-ticket items such as automobiles or appliances, and compare features and prices to find the best value.
Whatever approach you choose to educate children about managing money, your personal example is what they will remember the most. When teachable moments arise in daily life, seize the opportunity to reinforce the fundamental values you want them to remember – earn your own money, spend it wisely, pay bills on time, plan for the future, protect your loved ones. A financial representative can help you create a financial plan to support your values and priorities and help you achieve goals for yourself and your children.