Financial Literacy for Your Kids: Cultivating Habits of Wealth

Surprisingly, for a country that has been a world business leader for so long, the general population of the United Sates has only the most essential, survival-level understanding of money, finance, and wealth building. 

Most of you reading this, by virtue of your age and profession, will be in a position to leave a substantial amount of wealth to your children. If you knew the hard-learned life lessons on money and finance you know now and which you continue to learn on a daily basis when you started earning, how far ahead would you be?

Most children take the benefits their parents bestow on them for granted, only marginally aware that there is a direct relationship between the effort expended by others and the benefits they enjoy. Even very young children are aware of differences in perceived wealth based on people’s homes, cars, clothes, etc. but most fail to understand why those differences exist.

Below are some concepts and resources to consider when teaching your children to be responsible shepherds of both the wealth you will leave them and that which they will create and manage for their own families. This list could never be complete, but it does illustrate that many of your values and life lessons can be broken down and easily shared.

Lead By Example

Where possible, explain the value of purchases and the thought that goes into them. Teach children to comparison shop and pick the best widget, not the shiniest, newest or most expensive one. Don’t use shopping as entertainment and show them when and how you budget for a purchase.

The Effort and Reward Equation

Many experts in this area encourage simple discussions on these issues with children at a young age, including through the use of an allowance. Beyond merely being pocket money it can be an incentive and allow a child to learn that their efforts have a direct result on their personal prosperity. Other suggested methods include matching savings and incentive-based allowances for families that assign children duties or “chores.” Some parents base allowance on what the child has “earned” by completing the assigned tasks. No work, no allowance; the results seem to be positive even in cases where the tasks are simple like taking out the trash or walking the dog.

Wealth is Finite – Understanding Having a Budget

Some advocate explaining the value of certain desired purchases in terms of the percentage of an allowance, even on small items like when a child wants something in a supermarket. The lesson is magnified with larger purchases, where many parents are postioning things like an iPad as a goal to be achieved, not a right to be demanded at the mall. This key concept of not spending more than you have or earn has seemingly eluded most adults today as well. Perhaps we can teach our kids better and make them understand that responsible wealth involves choices and assigning value and priority to purchases.

The Cost of Borrowing and the Value of Credit

Some educators stress the need for education about credit and credit cards as vital. As we know, the minute a young person enters college or hits their 18th birthday they are swamped with credit card offers, often with disastrous results. Parents who use credit cards can explain to their children that, “Buying this cost $100, but if I don’t pay it off in full at the end of the month it could cost $118” and other simple lessons. Likewise, being responsible and paying debts and honoring credit arrangements in a timely manner is vital as they will increasingly be subject to credit scrutiny for loans, graduate school admissions, and jobs.

The Value of Giving

For many, the responsible handling of wealth includes giving. Show children how to give and the value and impact they can make in the lives of others. Educators uniformly point out that giving can and should be more than monetary and that contributing time is instructive for many children as the hands on experience shows them both what they are capable of and how fortunate they have been made by their parents efforts.

Financial Education Resources to Get You Started:

The Mint has resources for kids, teens, parent and teachers at
http://www.themint.org/index.html

Jump$tart - Jump$tart is a national coalition of organizations dedicated to improving financial literacy, seems focused on educators.

Rich Kid, Smart Kid – The folks who brought you Rich Dad, Poor Dad present info for kids in game format.

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