Raise Your Child Money Smart
By Kirk Wilson, President
Only four states in the U.S. require finance in their curricula to graduate – Missouri, Tennessee, Utah, and Virginia. Unless your family is fortunate enough to live in one of these states, your child will need to learn the budgeting and personal finance skills they need to succeed from you.
You can help your child avoid the mistakes that have led to our current weakened economy by being an example and involving them in your household financial management.
Make Money Public – No child is too young to begin discussing money. Talk about how money is earned and spent. Show them how small incremental increases in expenditures such as $50 a month adds up to $600 a month of after tax income. Teach your child how to do comparative shopping and get the best deal.
Review Household Budget Monthly – Use a personal finance application to compare actual results to your budget. Examine variances and make pending adjustments early. Discuss your thinking with your children, and think out loud so that they can internalize your judgment. Ask for their thoughts and listen to their response, and you might get a pleasant surprise. Other options include taking classes towards an online finance degree or use free personal finance applications. Mint.com is a powerful tool that imports bank and credit card activity automatically for free. The only limit to Mint.com is that it does not provide results in total. Intuit’s Quicken does provide total results.
Play Cash Flow from Rich Dad Poor Dad – This fun game teaches how to build wealth through investing, having your own business (where you can deliver the best benefits to the clients you serve), and investing in real estate. These sorts of games can lay the initial foundation for financial literacy.
Allowance – Give your children an allowance each month. Set a minimum saving rate, such as 20%, then have them calculate the amount they have to save. Always ask them if they want to save more. From that point forward, anytime they want to purchase something, respond with “Sure, you have your money, is this what you want to use it for?” Never extend a loan based on next month’s allowance, as this teaches poor financial discipline.
Life Cycles – Discuss how needs change across individuals lives. From starting out in high school and college, to managing your first household, to marriage and children, and medical needs late in life, demonstrate how to plan for a lifetime of financial stability.
Instilling money literacy doesn’t require a lot of planning or knowledge, according to Laura Levine, executive director of the nonprofit JumpStart Coalition for Personal Financial Literacy. The key is to start young, discuss money openly, and actively involve your children in your household finances.