5 Simple Ways to Bring Financial Literacy Home
To some, financial literacy is a matter best left to business school. For others, it’s a lesson that should be taught in every high school, middle school, or elementary school. But ask any child development expert, and you’ll quickly learn that home is where our deepest lessons are forged. So how can you instill financial literacy in your family? We have some ideas.
1. Communicate About Spending
For a child, money is usually tangible. Their money fills their pockets, lines their piggy bank, or falls out of birthday cards. So when mom or dad leave a store with a cart full of food by merely swiping a piece of plastic, a child can assume that such things didn’t cost a dime.
When you’re paying with plastic, use the point of sale as a teaching moment. Explain that the card you’re swiping tells your bank to send the store some of your money. Perhaps something like this: “Today, we’re using some of the money mommy and daddy worked for, just like how you work for your allowance. We’re trading the store some of our money for this food.” Their follow up questions about how your bank communicates with the credit card processor? You have our permission to make that up.
2. Spill the Beans on Expenses
If there’s one thing that helps our kids understand the reason that all their wishes can’t be made true with the waving of a wand, it’s an understanding of where all of that money goes in the first place.
Make a master list of the expenses your family incurs in a given month. Rent, utilities, grocery store runs, gas, health insurance, eating out, and even those little league dues. If it comes out of your paycheck, write it down. For added critical thinking, create a game out of the exercise: have your child guess the amounts of each budget category before revealing their true numbers. The gap between assumption and reality can be eye-opening, not to mention entertaining. Then talk through each line item.
The family car costs this much to fuel, this much to insurance, and this much to maintain...
Our house? There are bills to pay to keep the power on, the water running, and the trash collected…
Public school may be free, but your activity fees cost this much and lunches cost this much…
Want even more help on this front? Our Adulting page features video clips, lesson plans, and more.
3. Leave the Wants to Them
In his New York Times bestseller, The Opposite of Spoiled, Ron Lieber essentially argues to make allowance as close to a real job as possible. His main points: nix “chores” for more legitimate family contributions. A half-hearted wiping of the table? Not good enough. Helping to regularly prepare dinner? Better. But he’s matching that tough talk with generous spirit, imploring parents not to skimp.
Lieber says to establish a set budget for things as important as clothing, then let your kids decide how to spend it (and likely fail to cover their bases.) If they spent the funds unwisely, don’t bail them out; this is their chance to learn how to manage their finances before the consequences are more severe. As for the wants? Leave it to your kids to find a source for the cash.
4. Offer a Practice Run at Interest
One of the hardest financial lessons for kids to learn is self-control. Deferring gratification is a difficult practice for any of us. But giving your child a picture of what compound interest can feel like is powerful. Try this: put a clear jar on the kitchen table with $10, and tell your child that every day the jar is left untouched for the next month, they’ll earn 10% compound interest. Each day, add to the jar. Yes, the rate of appreciation is unrealistic, but its lesson is clear: deferring gratification is profitable.
For more information about the power of compound interest, watch a clip from our episode on the subject below, or read our book for kids titled How to Turn $100 into $1,000,000.
5. Nurture with Presence, not Presents
Finally, the most important point of all: in parenting, guilt is lurking behind every corner. Don’t attempt to wash it away with spending. Yes, a gift can put a temporary smile on a child’s face, but the long-term cost of financial bailouts is long-term spoilage. Your child’s financial future is
The next time they ask you to take them to the toy store, try something more lasting: make a toy, take a walk, or go for a bike ride. As for those things? They’ll develop a more enterprising spirit if you don’t just say yes.
