Educating Kids on Money Matters
Scheduling annual wellness exams for our children is a high priority, but complete wellness goes beyond mental and physical health. Raising kids to become happy independent adults includes teaching them to be financially responsible.
A recent study by the Council for Economic Education shows that children who receive financial education have higher credit scores at the age of 22 as opposed to those who do not. We can boost our children’s financial health by talking about money matters in our daily life both early and often. Unlike hiring tutors or paying for travel team trainers, we can teach money matters ourselves by focusing on a few essential strategies: making choices, earning and budgeting.
It’s All about Choices
Economics, the study of choices we make to be happy, is the foundation for all decision-making and is just as important in your child’s life as it is to a business mogul, policy maker or college professor. Kids make economic decisions when they decide when to wake up, what to eat or how to spend their time after school. Children who connect economics with their daily decisions make well thought out financial decisions when they are older.
- Asking for new sneakers — is that a want or a need? Gotta have the newest tech gadget — consider supply and demand. Want to stay up an hour later — what’s the opportunity cost? Kids as young as 6 years old can understand these economic terms through the everyday situations below and can use their newfound vocabulary as they explain choices they make.
- Scarcity: Talk about the scarcity of time after school when deciding to play with friends, do homework and have dinner before the bedtime routine begins. Put aside one bag of pretzels or other favorite snack to last for the week.
- Needs and Wants: For dinner, vegetables can be explained as a “need” and dessert can be described as a “want.” Using sales flyers, newspapers and magazines, children can cut out and sort through pictures of toys, shoes, clothing, sports equipment and technology devices and place in two separate categories to better understand the difference between wants and needs.
- Supply and Demand: A trip to the beach shows us how many parking spots are supplied and how many more spots are demanded during a busy holiday weekend. A visit to the grocery store in February will show an increase in the supply of red roses to meet the increase in demand on Valentine’s Day.
- Opportunity Cost: Children can easily learn about opportunity cost when they decide what to wear or which dessert to have. When you choose cookies over a brownie, the thing you did not choose becomes the opportunity cost.
- Once kids understand how to make choices, they are ready to earn money.
Learning about Earning
Providing an opportunity to earn money as a child is important because it is the same opportunity they will have as adults. A regular allowance gives children the experience of a financial reward based upon their own efforts, which is different from receiving money as a gift for birthdays, celebrations and holidays.
- Beginning with small amounts during elementary school with the potential to earn more as time and responsibilities increase, replicates what they can expect as adults. Share your own stories of working, training for new positions and being promoted.
- Determine an allowance amount that can be gradually increased over time and enables children to purchase something on a monthly basis. This teaches short-term and long-term gratification they will use as adults.
- Paying for projects is an alternative to offering regular allowance. This works in families who do not wish to pay for chores — making a bed, washing dishes, putting away laundry — but instead offer washing/detailing the family car, cleaning windows, organizing the garage, or weeding a garden. List these jobs and the amount each pays on a poster and let children decide to take the job or not.
- Crafty kids can explore their entrepreneurial side by creating jewelry, hair accessories or custom beach towels to sell in their communities with mom’s and dad’s support.
Commit to Budgeting
Just as parents allocate money for spending, saving and donating, kids can learn the same type of budgeting early on in order to practice for bigger decisions. If kids earn an allowance, make the amount enough so children can budget on a regular basis and celebrate short and long term results.
A fun way to visually represent budgeting for kids is to have them decorate three plastic or glass containers, even plastic baggies. Encourage kids to get creative as they imagine and draw the ideas they have for buying something fun for their room, saving up for a Father’s Day gift, and donating to a local animal shelter.
As money is earned or received as a gift, it is divided between the three jars in amounts decided as a family. Parents can explain that their spending budget is often larger than the other two categories but that saving and donating is important even in smaller quantities.
As children grow older these jars of money can be deposited into bank accounts and tracked online and through smartphone aps with their parents. Most banks and credit unions offer debt cards to teenagers that are linked to their parents’ accounts.
Children look to their parents for guidance in many areas and money matters are no exception. While we are quick to encourage physical fitness, we can also inspire fiscal fitness. When we emphasize economic choices, earning and budgeting, our kids will not only be healthy, but wealthy too!
Michelle Balconi is a writer and speaker dedicated to connecting children and adults with economics to increase financial literacy and improve overall decision making. She collaborated with Dr. Arthur Laffer to write Let’s Chat About Economics, a first-of its kind illustrated book of conversation starters for families. letschataboutecon.com