How To Teach Kids About Finance
My favorite part of financial planning is telling a client they have reached financial freedom. However, for many of our clients this brings up a more complex planning need, passing that wealth to their children. Recently we’ve been helping parents grapple with the paradoxical fact that their children will have more wealth than they themselves will ever see in a lifetime, just by means of inheritance—this is the power of compounding interest and good investing.
These parents of course want to prepare their children to use this wealth responsibly, the question then becomes; how do you teach them to do that?
There are many tips and tricks articles, comprehensive guides, and even educational materials for sale on this topic. John Lanza of Snigglezoo Entertainment promoted the company’s educational materials called the money mammals through his New York Times article “Start With Toddlers: Share, Save and Spend.” They now offer packages that teach finance at all ages for institutions and parents. Sesame Street also partnered with PNC Bank after the 2008 financial crisis, creating a program for kids called “For Me, for You, for Later” providing episodes of the show and guidance on financial literacy education for teachers and parents.
The one method they all agree on is spending, saving, and sharing. This philosophy can be applied to all age groups in creative ways to help children, tweens, and teens develop financial literacy. Let’s dive deeper into what each level means.
Spending
For most kids and adults spending money is easy—the money mammals call this level smart spending instead. The big goal here is to teach children about value. This can be done by giving them choices when spending their money—on Sesame Street Elmo has to choose between buying two apples or one mango for the same amount of money. They also have children choose between large paints with only 6 colors versus smaller paints with 12 colors for the same price. Most toddlers choose the larger item because it’s bigger in size visually but pointing out the greater number of colors available helps them think about the relative value of the item they want to buy.
Saving
Saving is harder for children because it involves waiting, which is hard for even adults to do. If you’ve ever had your child save up their money to buy a toy they really want, this helps them practice waiting. This helps them learn that there are rewards for saving their money. As kids get older, they may save for longer but Russell James of Texas Tech University’s financial planning division cautions against making kids wait too long for their reward. He argues that there’s value in the repetition of saving, like the muscle memory you develop at sports practice.
Sharing
For adults we think of this as donating or giving but in Ron Leiber’s New York Times article “Too Young for Finance? Think Again” he says the term ‘sharing’ is used to build upon the skills children learn about sharing in pre-school, rather than giving back to the community kids can view this as sharing with the community. This can be started at a young age in simple ways like having your child give their friend a dollar to buy an ice cream together or like the Sesame Street example of buying cat food for a local animal shelter. As kids get older, they can start researching organizations they value and begin making donations or using their own money to host events for friends or family.
To piece together spending, sharing, and saving most of the financial educational materials also touch on how to get money. This item looks different for many kids; some get allowances, other’s work for it by helping around the house or getting a job, or they might get paid for good grades in school. Regardless of how children get their money, you want to focus them on using the spending, saving, sharing model when they allocate it. Leiber’s article shows two examples of how this could be done, the first is simply dividing the funds into thirds and putting one third in a spending jar, another third in a savings jar, and the last third in a sharing jar—this is the approach the Sesame Street series takes. On the other hand, Leiber cites the book “Pretty Penny Sets Up Shop” in which the main character penny must save up money to then spend on a party that she will share with her grandmother. This is a goals-based method of stringing together the spending, saving, and sharing pieces.
The spending, saving, sharing model isn’t the only knowledge your children will need for financial success but it’s a great foundation to get them started. This practice can be applied in many aspects of children’s experiences with money across various age groups. Making this strategy a versatile tool for parents to use as they navigate teaching their kids financial literacy.
Sources
Ron Leiber, “Too Young for Finance? Think Again,” The New York Times
John Lanza, “Start With Toddlers: Share, Save and Spend,” The New York Times
“Finance for kids parent/caregiver guide: for me, for you, for later,” Sesamestreet.org
