It’s safe to say that our clients believe that attaining financial security is a strong value. According to a 2023 Princeton study by Nobel Prize-winning economist Daniel Kahneman, 67% of respondents said being able to pay their bills on time would increase their happiness, and 45% said that owning a home would increase their happiness. While I’m not here to argue that money buys happiness, I tend to agree with the saying, “I’ve been rich and I’ve been poor and rich was better”- a quality I hope you find reassuring in your wealth advisor.
We know that financial literacy in children leads to better financial outcomes as adults. If you could choose for your child to feel financially secure or to live their life without financial security, I think most parents would choose financial security for their children. This shouldn’t be a trick question. Fortunately, there are several things we can do with our children and grandchildren to help increase their financial literacy and empower them to make good choices.
Lead by Example:
Demonstrate healthy financial habits such as budgeting, saving for the future, avoiding unnecessary debt, and making informed spending decisions. Children often emulate their parents' attitudes and behaviors toward money, so setting a positive example can have a lasting impact on their financial well-being. Do you ever think about your own money attitudes and see the direct connection to how they either align or completely go against how your parents approached money? Why do you believe you have the attitudes you do?
Introduce Money Management Through Allowance:
Giving children an allowance is a great way to teach them about budgeting and saving. Start by providing a weekly or monthly allowance and encourage them to allocate a portion for spending, saving, and sharing. For example, if a child receives $10 a week, suggest they save $3, spend $6, and donate $1 to charity. This exercise instills the habit of prioritizing financial responsibilities and teaches them the value of money.
When I was really little, my Grandma used to take my sister and me to the Dollar Store and give us $5 each. Every week we were reminded that we had to prioritize and could only take home what we could afford. Later in middle school we received allowances and were told that we would need to pay for half of our cars when we turned 16. Needless to say, my sister and I both drove the same 16-year-old beater with no air conditioning. Despite the ugly beginnings, I think my sister and I are both grateful to have learned financial literacy from a young age because we can see how the financial choices we made in our teens and 20’s continue to have a positive impact into our 30’s.
Play Financial Literacy Games:
Engaging in fun and educational games can make learning about money enjoyable for children. Board games like Monopoly or The Game of Life teach concepts such as budgeting, investing, and managing assets. Online resources like financial literacy apps or virtual simulations also offer interactive experiences for kids to practice money management skills in a safe environment.
Try Googling “top financial literacy games for kids” and you will find tons of suggestions for ways to help gamify financial literacy at all ages. As your children get older, they can start investing simulations where they learn how to research stocks and engage with the market. Or maybe you open a brokerage account for them and allow them to manage the account.
Involve Children in Household Budgeting:
Incorporate children into discussions about household finances to help them understand the value of money and the importance of budgeting. Show them how to create a budget for groceries, utilities, and other expenses, and involve them in decision-making processes when making financial choices as a family.
Imagine if you and your spouse/partner review your monthly budget and determine that you should cut back. Now imagine if you include your children in this conversation and discuss ways to reduce costs without sacrificing quality of life. Maybe your child suggests meal planning to save money on groceries, which the family agrees to implement. By involving your children in budgeting discussions, they learn firsthand about financial responsibility and the impact of everyday spending choices and likely will later feel more confident about their own decisions.
Teach the Value of Delayed Gratification:
Help children understand the concept of delayed gratification by encouraging them to save up for bigger purchases rather than indulging in instant gratification. Set savings goals with them and celebrate their achievements when they reach milestones. Emphasize the satisfaction of achieving long-term goals through patience and disciplined saving habits. The joy of buying an item that needed to be saved for teaches children the value of patience and persistence in achieving financial goals.
By incorporating these strategies into your parenting approach, you can empower your children to become financially literate individuals who are equipped to navigate the complexities of personal finance confidently. Remember that financial education is an ongoing process, and fostering an open dialogue about money lays the groundwork for a lifetime of financial well-being.
