Many people, myself included, advocate that personal finance should be taught in elementary and middle school curriculum alongside traditional subjects like reading, writing and arithmetic. (It is our lifeline!) It is critical that kids start to learn the value of money, short-term and long-term saving and budgeting at an early age. At the same time, parents recognize that introducing the basic concepts of money management to kids at home is just as important and offers an immediate solution to improving their child's financial literacy. Figuring out how to actually do this in a fun and engaging way is the challenging part.
I've been inspired by several recent stories in the news and by feedback from LearnVest users. So, I've pulled together what we've found to be five creative and effective ways to introduce the topic of money management to young children below. For the most part, these suggestions are geared for children age 7-15, but can be shaped so they are age appropriate.
Since I do not yet have children (still saving!), I am going to share what others have found to be most effective and ask that anyone with additional tips, advice or anecdotes from your own experience to please share them below. We are listening!
1. Make a game of saving money at the grocery store
Bring your kids along next time you go to the grocery store and ask them to help find the price per unit for the general grocery items. By comparing brands and looking for the best prices, kids will get in the habit of looking for deals and understand the value of the dollar. Be sure to calculate how much you save on their choices and put that money towards a savings account, a charity of their choice, or something fun like an afternoon trip to Baskin Robins. Not only will they learn about saving, spending and sharing, knowing they are part of the decision-making process will keep them engaged and eager to continue this behavior.
2. Get creative with games and puzzles
I recently read an article about a first-grade teacher in Port Richey, Florida, who used puzzles and games to teach her students about the basic concepts of budgeting and saving. The Florida Council on Economic Education awarded her the Governor's Award for her clever and innovative approach in "Budgeting Positive Behavior."
Using Jigsaw puzzles, Carmen Johnson awarded her first-graders with pieces to a puzzle each time they completed tasks on time. Once the puzzle was completed, they could turn it over and receive a prize. Johnson compared earning puzzle pieces to handling money, along the lines of "the more responsible you are, the more you can earn; the more you can earn, the more you can save; the more you can save, the more you good things you can get."
While Johnson did this in the classroom, parents can replicate this at home. You can also play board games that explore different concepts of money management with your children, who are slightly older in age. Monopoly, Game of Life, Moneywise Kids and Payday are among those highly recommended by LearnVest users. The Internet also provides a vast wealth of resources. Piggybank, Money Word Games and Change Maker are all great options as well.
3. Use allowance as an opportunity to discuss money management
We know allowances can be controversial. That said, providing an allowance for young children whether it be for completing responsibilities around the house or not, can help them start understanding the basic concepts of cash flow and savings at an early age. We particularly like the 3-jar allowance/piggy bank system, in which the child has three clear jars: one for saving, one for spending and one for charity.
A middle school history teacher once told our class that he and his wife gave their kids two dollars a month and they had to put one-third in savings, one-third set aside for charity and one-third free to spend however they wanted. The size of the amount wasn't important but the dialogue and indirect learning that his children picked up on likely lasted a lifetime. Whether you're five years old or in the middle of your teens, this lesson should resonate. The fact that it still sits with me after 15 years makes it an important lesson that I learned sitting in sixth grade history class!
It's is up to you on how to advise dividing up the money, but it's important that children practice handling and managing the money they earn early.
4. Give time, a service or old toys/clothes to a charity
This family routine came in from a LearnVest reader, and we really liked it. Kids can learn a lot about necessities and wants by recognizing what people live without. A common routine, but one that should not be overlooked, is having a family donation to a charity for those less fortunate. Ask your kids to search for items, toys, or clothes that they no longer use and contribute those items a collection box.
Around holiday season, suggest that they give a service that can save money for others (i.e. babysitting one night for free or taking on responsibilities around the house for free). This will not only be a family activity bringing everyone together in the decision making process, but teaches children habits of giving/service that will hopefully last a lifetime.
5. Bring an article or a question about personal finance to the dinner table
Allocating a specified time to talk about household finances or a current event that pertains to issues such as savings, unemployment and consumer spending is a great way to maintain a dialogue with your kids on money management. By including them in the conversation about household finances and eliciting their feedback and questions, you can empower them with a sense of responsibility and confidence when it comes to personal finance.
If they have a question about purchasing an item they really want, run the numbers with them so they understand how much they earn from part-time jobs and how much they can save in one month, on year, etc. for that special purchase. My parents did this with me, and I always felt like I was an 'adult' with my money because of it.
In conclusion, since this precious education is not yet taught widely in schools --- we can bring it home! Please share with us any great lessons you have.