I’m in full agreement with teaching children about personal finance. Financial responsibility does not begin when you make a few mistakes and then decide to correct them. It begins when you have a clear understanding about the consequences of your actions and you are knowledgeable about the choices that you have. And the best way to do that is to ensure that your child is taught these basics at a very young age.
I’ve always believed that there should be some type of life skills classes in schools with at least one module that covers personal finance. Children should be taught all of the personal finance basics. This includes teaching children about needs, wants, opportunity costs, methods of saving, types of savings account, the different types of taxes and how to file income taxes.
So the question is not “should we be teaching children about personal finance”. The questions are “what can we teach children about personal finance and where should we begin.” The methods and tools used to teach about personal finance will depend on the age group that you are targeting.
If your child’s school does not have a personal finance class, here are some things that you can do at home.
Personal Finance for Young Children
Children are very perceptive at a young age and there are many opportunities for them to learn about personal finance even before they begin school. For children between three and twelve, you will have to introduce them to essential personal finance terms and concepts.
You can begin by teaching them the difference between needs and wants. This can be done by using a story to explain what needs and wants are. The use of visual aids to accompany the story are encouraged because they appeal to various types of learners. Also use examples that they can relate to by using them as the subject of the story.
Another cool tip is to introduce children to saving versus spending by using a piggy bank. Explain the differences between saving and spending and the benefits and consequences of each. This is also a good time to introduce them to savings goals. When I was younger, I had a piggy bank that I was determined to fill with coins
Games are another way to teach children about personal finance. I’ve always loved monopoly. Not only is it a great financial game, it’s an excellent tool that can teach important personal finance lessons. If you will be using monopoly to teach your child about personal finance, focus on the benefits of keeping cash on hand, being patient with money and how to monitor cash flow.
Personal Finance for Teens
By the time your child hits the teenage years, he or she should have a basic knowledge of personal finance. Needs and wants and saving and spending concepts should be easy to understand and should be in practice. Teaching children about personal finance at this age, forms the foundation for more advanced terms such as credit and debit, interest rates, saving for retirement and how to save for long term and short term goals.
If your child receives an allowance, this can be a great tool that can be used to teach them about personal finance. Allowances can be tied to age appropriate chores. Create a list of chores, some of which will result in payment. If the chore is not completed, no money is earned. You can also attach a clause to the allowance that states that a certain percentage of the money earned must be saved.
Another way to teach your about personal finance is to involve them in certain aspects of your decision making. For example, you can include them in your trips to the supermarket so that they can see how to compare prices and quantities of goods. Show them the utility bills and explain how cutting back on usage can result in cost savings. Teach them how to calculate the costs of making their own lunch versus buying everyday.
This age is also the perfect time to educate children about funding their education. It’s a widely known fact, that children usually go into debt when they are pursuing higher education. Planning is an important lesson that you can impart by explaining the consequences of not being sure of a career choice and taking on too much debt for studies. Encourage your child to look for scholarships and grants so that they can reduce their dependence on student loans.
Personal Finance for Young Adults
As time progresses. teaching children about personal finance becomes a lot easier. By the time your child reaches young adulthood, he or she should be knowledgeable about personal finance and well equipped to deal with the waves of being grown. Vehicle ownership, home ownership and children will be on the horizon soon. Unfortunately, some young adults do not know the basics and end up making terrible mistakes that haunt them for years.
One of the best pieces of advice for young adults, is to start planning for retirement when you get your first job. Not all companies offer retirement plans, but there are financial institutions that have plans that you can sign up for. Retirement can seem like a long time away, but contributing to a retirement plan will add up and your earnings will grow.
Spend less than you earn. It will be tempting to buy all of the things that you want especially when you have a credit card. But just remember this: where is the money going to come from to pay that credit card? If you understand the concept of needs versus wants, you will be fine.
In life, things will happen that you have no control over. Be prepared for the unexpected. Create an emergency fund. Many finance articles will tell you that you should have at six months’ savings in your emergency fund. I’m going to tell you to have at least one year. Your emergency fund should be able to cover your car loan, rent/ mortgage, food bill, student loan etc. for a minimum of one year.
Teaching children about personal finance is not difficult and in some cases you might not have to do anything. I never received any personal finance classes, but I was still able to make good financial decisions. My parents were avid savers and would save their odd cents and change in large cans and bottles. I was either eight or nine when I started saving my allowance in a bottle. No one told me to do it – I simply followed what I saw.
Starting a business is easy, but you should be prepared to work hard to achieve profitability.