How to foster your child’s financial literacy
As parents, we all want what’s best for our children. We spend years nurturing, encouraging, and preparing them to be “out in the world.”
School can help prepare our kids in many ways, yet some things typically fall on us. As financial planners, we often hear clients say they wish their children had more formal financial education.
The good news is that programs like Money Savvy Generation have gained traction in schools, and others hopefully will follow. Still, it falls on our shoulders as parents to be their primary educators.
Most children are eager to learn. They will learn about money from peers or by modeling our behavior. To help steer our kids’ education, here are four basic, related concepts and some age-appropriate suggestions:
Wants vs. needs: Frame purchasing decisions based on how important they are. For example, we’d all want a new PlayStation, but we need to buy groceries, pay utilities, pay our rent or mortgage, and so on. Learning the difference between wants and needs can help young consumers spend more intentionally.
The importance of saving: In the old days (I’m dating myself here), we would save up to buy big-ticket items. I distinctly remember putting away my paper route money to buy a new bike. A certain pride came with riding my new Schwinn, knowing that I had worked hard for it. Encourage your child to save for a tangible goal and help them measure their progress. Just saving a little each week or month also establishes a habit that will become second nature over time.
Deferred gratification: Of course, if I had spent all my paper route money on candy and fast food, I never would have saved up enough. Having that specific savings goal allowed me to focus on what I really wanted. Children should know that money spent now won’t be available later. This life lesson will help them later as young adults, saving up to buy a home or for their own retirement, when perhaps there’s the temptation to spend on the here and now.
Budgeting: Or if you prefer, the importance of living within your means. Help children be aware in an age-appropriate way how much it costs to run your household. How much can we spend each week on groceries? What does it cost for electricity, gas and other utilities? After we spend on the necessities, what do we have left for clothes, our pets, charitable giving, dining out, and other fun activities? Besides creating awareness of what things cost, kids will learn that the necessities come first, before the fun stuff: resources are finite, and spending should be prioritized to what matters most.
Finally, life is about working hard so that we can enjoy it. If we do a good job handling our finances, we can reward ourselves with a family vacation, that PlayStation console, or even a new bike.
Want to learn more about raising money-aware children? We encourage you to visit the following links:
https://www.fdic.gov/resources/consumers/money-smart/money-smart-news/kids/index.html
https://www.ndsu.edu/agriculture/extension/publications/talking-children-about-money
https://www.moneysavvy.com/main/resources_families.html
• Edward Scoby, a certified financial planner, is a father of three children and a partner at Ironwood Family Wealth Advisors in Barrington. Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through Sequoia Wealth Management, LLC, a registered investment adviser. Ironwood Family Wealth Advisors and Sequoia Wealth Management are separate entities from LPL Financial.