I’ve been thinking about money lately, since Parentables is running a financial literacy theme throughout the month of April and I’ve been assigned several money-focused features. It’s an interesting topic for me, especially since finances tend to make me uncomfortable. Throughout my research, however, I’ve realized that this is a fairly common reaction to money — and that’s a scary thing. Financial literacy is not talked about enough at home or at school, which is downright negligent when you think about it. Considering that knowing how to manage one’s finances is key to success in life, you’d think that adults would want to ensure kids’ understanding of all financial matters, yet it seems that the opposite is true. Perhaps it’s because a lot of adults don’t even understand these things themselves.
My parents opened a bank account for me when I was six, as soon as I had a few dollars to put into savings. I was an obsessive saver, barely spending my money, which turned out to be beneficial later on when I’d acquired enough money in the bank to afford some great overseas trips. But my knowledge ended there. Words like ‘interest,’ ‘mortgage,’ and ‘credit’ were intimidating. My husband Jason was also not taught financial literacy beyond the importance of saving scrupulously, so when he left home he threw himself into learning all about these things by reading books on money management and doing extensive research. His original goal: be able to retire by his early 40s! Since that’s only nine years away, the plan has been somewhat readjusted, but I still greatly admire that he set that goal in the first place.
I want to teach our kids about money from an early age and make them comfortable with saving, budgeting, investing, and spending. I’ve heard a few stories from friends that have impressed me greatly. My cousin-in-law’s parents insisted that he work every summer starting at age 12 and taught him to put 10% toward charity, 80% toward education savings, and keep 10% for spending. By the time he reached university, he had more than enough to pay his tuition and has money left over for travel and extra expenditures. Another friend had to give his parents all his tuition money up front (whether earned or borrowed) and at the end of the school year he’d receive back the percentage of money that matched his final grade, i.e. 75% of the money if that was his mark for the year. Talk about motivating your kid to do well in school! That same friend, for the record, closed on his first investment property on the same day he graduated, so obviously he’d learned some valuable lessons about money management along the way.
I like both of these approaches because I really don’t think that handing over money for school (or anything, for that matter) helps kids learn about money in an intelligent, valuable way. It just teaches them that money is easily available, which isn’t true in real life. It’s up to us parents to create educational situations in which kids can learn to be shrewd in their decision-making before it’s high-risk. Jason and I have agreed not to give our kids an allowance because, to us, that’s just free money. No member of this family gets paid to be a part of it and we’re all expected to pitch in around the house. I do like the idea of paying interest on our children’s savings as a way of teaching them how interest works and why saving is a good idea. At the end of each month, they will tally up however much they’ve saved and receive x-number of dollars (or cents!) based on the percentage we’ve agreed to pay.
I’m curious to hear what some of your thoughts are on teaching financial literacy to kids, or what experiences you had learning about money while growing up. Please share!