Kids and Money - Teach Them What They REALLY need to know!
Kids and money should be a topic in every child's educaion, but sadly that is not the case. Public schools certainly aren't teaching basic financial literacy. If you look at the history of public schools, you'll see they were really designed to provide followers and workers for the industrial age, not leaders.
Kid won't learn how to save money or invest wisely, nor how to make money or make intelligent buying decisions in the public schools. In fact most students graduating from high school lack the bare basics in managing their personal financial affairs.
Many can't even balance a checkbook and most simply have no understanding of the basic principles of earning, spending, saving and investing needed for survival - let alone success. Since 1997, the Jumpstart Coalition has surveyed high school students across the country to determine their basic financial literacy and the students have consistently scored failing grades, averaging dismally in the 50's.
When homeschooling, we can focus our time and energy on the things that are really important for our children's success. Teaching kids money skills will help them accomplish more and help them achieve financial independence.
So what is important in raising financial savvy kids?
Kids and Money Value: Teaching Your Kids the Value of Money
Children not only need to know the worth of the various coins and bills, but what the money they have will purchase. Whether you give you children an allowance, have them earn money through chores or encourage them to start a business – kids need to have money to be able to learn about saving, giving, investing and spending. If your son realizes that it will take 10 weeks to earn enough for the Lego set he wants, he has a greater understanding and appreciation for the value of money. Kids' money experiences in their early years can help them become more financial saavy and develop good money habits.
How to Make Money Work For Your Kids
Letting a child experience saving her money and either investing it in a new business, putting it in a bank account or purchasing stock lets her see first-hand how money can increase when invested. She will start to see the benefits of interest and profit in a tangible way. Kids' money skills improve with frequent and regular experiences in making choices. Letting them experience the repercussions of poor money decisions now when the stakes are low can prevent poor choices when their mistakes will be more costly.
The Power of Interest Rates and Compound Interest
Showing kids how much they would REALLY pay for something if they used a credit card and have to pay a 17% interest rate for 6 months, or how much a house costs after paying the compound interest for the mortgage, or college costs after paying the compound interest for the student loan, or car costs after paying a 5 year loan, will give them a REAL understanding of the negative effects of interest on their money. Not only is this a great real-life math problem to figure out, it shows the importance of delayed gratification.
In addition to showing children how interest can work against them, show them how the power of interest can work to their benefit in creating good financial health. Explore how much money they would earn after 20 years if they invested in an IRA or certificate of deposit, how 401k's work, etc.
Kids and Money Literacy: The Difference Between Assets and Liabilities
An asset can be defined as anything of worth, but this is where people often get in trouble. In financial terms as asset is really something that earn more money for you. If you have read Kiyosaki's Cashflow Quadrant or other books you will realize that the distinction he makes in defining assets and liabilities is in the direction the money “flows”. So if you child takes $40 that he has saved to purchase supplies for his new business and makes $80 from his initial investments and continues to make money, his business is an asset.
If you buy rental property that earns money, then that is an asset. However, your house wouldn't be considered an asset unless you sold it for more than you paid for it. While you are living in it, it is the bank's asset, since the money you pay for your mortgage is “flowing” to the bank.
This distinction is something that many adults don't know, but definitely something you want your kids to understand in developing their basic financial literacy.
Kids and Money Mishaps: Make Small Mistakes Now to Avoid the Big Mistakes Later
The benefit of starting kids out young in investing and entrepreneurship is that it allows them to make mistakes while the amounts they may lose are small. Mistakes and failures along the way are an important part of the learning process. Children need to learn that it is okay to make mistakes as long as they learn from them. Anyone who has reached even a small level of success in their endeavors has also experiences mistakes and challenges along the way.
As Thomas Edison said, “Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time.”
And in regard to other people's comments about this perseverance in the face of failure, he said, “I have not failed. I've just found 10,000 ways that won't work."
Kids and Money Practice: Real-life Experiences in Earning, Saving and Investing
Real-life experiences with money and business early will give children an edge in developing their financial literacy and future financial independence. Children as young as 3 or 4 can start by learning the coin denominations and value. As soon as children can start doing simple chores, they can learn how to earn money, save, give, and spend wisely.
There are banks made which have separate sections for saving, giving and short-term savings for spending. Or you can simply label containers or jars with your child, so that money earned or received as gifts can be divided between the appropriate containers.
As children grow a little older let them open a joint saving account, start tracking and learning about stocks, and other investments. Children as young as 5 or 6 have started simple businesses and there are many young entrepreneurs running successful businesses. Cameron Johnson started his first business at 9 yrs. old and had started 12 successful businesses before he turned 21. He made his first million dollars before finishing high school. He is one of many successful young entrepreneurs.
Kids and Money Making Ventures
Grab some of the kids books on the recommended resources page from your local library, a notebook, and your kids imaginations... and they'll come up with lots of ideas - but here are some to get you started:
- selling baked goods
- selling flowers or vegetables
- selling seedlings and sets
- shoveling snow
- garden and lawn work
- creating and selling crafts
- breeding and selling animals
- animal care
- start an online business
Kids and Money Giving: The Importance of Generosity
An extremely important part of your children's financial education is learning to give to others and share their good fortune. People and relationships are far more important than money, however learning the good that can be done through financial knowledge is a valuable lesson. There is nothing wrong with earning and saving money, but learning generosity is equally important to prevent a “love of money”. Money can be used for great good, but you don't want your children to be obsessive about it or have money control them. By giving money to those in need, children can feel good about their accomplishments and become valuable members of their communities as they grow older. Kids' money donations don't have to be large. It is the habit and thoughtfulness that is important to develop.
In addition to giving at their church, children can find charities that have a personal meaning to them. Perhaps a visit to a local shelter for the homeless, saving to provide a goat to a third-world family, or donating to a favorite animal shelter. Help your children do their research and chose a charity they feel strongly about. This is an important life lesson and part of a complete financial education.
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Resources for teaching kids about money
Successful young entrepreneurs
recommended kids and money books
There are Links to Free Financial Education websites on the Free Homeschooling page.
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