Yesterday I volunteered at Junior Achievement’s Finance Park (Montgomery County Campus). I wrote about my experience here and after some reflection, I decided it warranted an extra blog post. So if you're a parent and looking to bring financial literacy and open conversations into your family, keep reading below to learn 15 Financial Literacy Tips for kids of all ages. And be sure to read all the way to the end for a bonus tip.
Pre-School & Early Elementary
1) Get a Piggy Bank - call me old fashioned but kids love to see how much money they have and they will show anyone. Literally, anyone. Pro tip: if they have siblings, make sure you keep tabs on that bank or get a bank with a security code/lock on it. We may or may not know from personal experience.
2) Cash Money - use dollar bills and coins to teach basic math and counting concepts and have them use your money to pay for items at the store. See piggy bank example above.
3) Don’t Forget Sales Tax - this is a perfect time to introduce the concept of taxes and why an item that costs $2.99 is really going to cost them slightly more.
*while I think it's possible some of these younger children might see cash get phased out at some point in their life, it's here for now so have them get used to seeing it and using it.
Elementary School & Middle School
4) Bucket Strategy - teach your kids to save early by creating at least two buckets of money. Every time they receive money have them divide it up between a "spend" bucket and a "save" bucket. If philanthropy is important to you, you could also add a "give" bucket. Talk with them about how they want to allocate their money to each bucket and give them your suggested guidelines. To instill strong savings habits early go 50/50 (Save/Spend) in a two bucket strategy or 25/25/50 (Give/Save/Spend) in a three bucket strategy.
5) Pay With Cash - I know it's super easy to transfer money from their account to yours or have them use a debit card, but man does that not spark any kind of emotional pull around spending money. The mere act of parting with a dollar bill vs. swiping a card is so vastly different and incredibly impactful. Don't believe me? Next time you're at the store and have cash to cover a purchase, notice whether you use the cash or your card.
6) Skin In The Game - I love this concept and we use it in our house. Simply put, the child participates in the cost of purchasing an item they really want, but don’t necessarily need. You could also give them a level of spending you’ll participate up to, and if they want to spend more on an item like sneakers, headphones, etc, then she/he has to cover the difference. This can help ingrain a sense of ownership and responsibility for the purchase itself. In addition, the child might need to work for and/or save money in order to purchase said item(s) - two very powerful and important financial concepts.
7) Research Purchases - simply running out to get [insert shiny new object here] immediately is fine and sometimes easier. I get it. However, we could be missing out on a wonderful teaching opportunity. With the internet, you can begin to teach your kids how to save money on purchases by finding an item she/he wants at a lower price. If you have a coupon for the item or store, have her/him calculate the "savings" for you. Don’t forget about sales tax and/or shipping costs!
8) Delayed Gratification - when our kids want to buy something, which is invariably via Amazon, we have them put it in the "shopping cart" for 24-48 hours before they can buy it. This forces them to put their instant purchase dopamine surge on hold and consider whether they really want the item.
Late Middle School & High School
In addition to continuing with the concepts above, now you can begin to add more nuanced concepts:
9) College Plans - now is the time to start talking about college and the costs associated with college education. It's also a good time to discuss how you might be able to or plan to assist them, financially, with obtaining a college education (or other career knowledge). Set expectations and have real conversations so they, and you, can plan and move forward with an eye on being financially responsible.
10) Get To Work - part time or summer jobs are not only great for college savings but it can instill habits they'll require later in life like responsibility, time management, and money management.
11) Fund That Roth IRA - if your child is working*, have them open & fund a Roth IRA for tax deferred growth and tax free benefits a Roth IRA can provide. Parents can match up to 100% of the child's earned income within the Roth IRA contribution limits.
*”working” means earned income reported to the IRS via W2 or other reporting document
12) Spending Plan Habits - now is a perfect time to help them understand how to manage their money. Instead of giving them free reign over their bank account via a debit card, assign them a dollar amount for the first half of the month, every two weeks, etc. Make it something similar to how they might get paid in the real world. Help them forward plan for upcoming events like a vacation or a night out with friends so they can learn to manage their money for an extended period of time - not just for what's happening today after school. Because let's face it, that's all most pre-teens and teenagers can see anyway…haha.
College
13) Summer Jobs - yes yes and yes. Help prepare them for the upcoming reality that the sun and fun of their college days will be over in the blink of an eye. You might get an "ok boomer" shot back at you but whatevs. You'll be thankful later when this spark of independence helps them get their own place after college and not back living in your basement.
14) More Skin In The Game - maybe you're fortunate enough to send your kid(s) to college on your dime. They are lucky kids. It’s still sound financial practice to have them participate in some of the costs of their college education. Have them pay for their meal plan at the school cafeteria, a couple of books a semester, anything that helps them feel a sense of ownership and responsibility for their education and the cost(s) associated with it.
15) Reimburse Me, Mom & Dad - if your kid(s) are living off campus, have him/her pay the bills associated with it and reimburse them. You might front him/her the funds in advance, but he/she is responsible for paying the rent, electric bill, cable, etc. out of his/her account. If they want money for the next month, they have to submit their expenses to you. This reinforces our earlier concepts like forward planning with money, managing money/spending and helps prepare them for when they're actually out on their own - and not back at your house.
Bonus Tip
The Family Match - if you're asking your kids to pay for some items, I think it might be a fine idea to also incentivize them to save. You might give them a 10% match on their money at the end of the month, quarter, per contribution, etc. Or whatever percentage feels right to you. You're rewarding them for this wonderful habit. This can also help to show how their money can grow over time if they don't spend it…ala long term investing.
Teaching our kids to be good stewards of their (and your) money will go a long way to helping them learn about and achieve financial success and independence in all stages of their lives. And it can also help you be better with your money, too.
Have some tips you love or have had success with? Send me an email and lmk.
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To read about my experience at Junior Achievement’s Finance Park and what prompted this blog post, check out Part One: OPFA at JA Finance Park