Summary
I believe one of the reasons why many people struggle financially is because of the lack of financial education taught in our school system. I also feel like so many families neglect to teach their children basic finance skills because they focus so much on extracurricular activities than understanding finances. In fact, if you ask a typical teenager the question: “Who is Kim Kardashian or Han Solo?” you will immediately get good answers. But if you ask that same teenager the question: “What is inflation?” expect a reply that goes, “Sorry, what was the question?”
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Related topics
I am a firm believer that if we teach and train our children good finance principles and economics at an early age, they will most likely be able to avoid the pitfalls of bad financial decisions and mitigate the risk of poverty both on a micro and macro level.
I want to, in some measure, help to solve this problem. And, I want to start with the family. If we strengthen the family, we strengthen the society. Here are some tips:
- Teach them to save early
- Teach them to differentiate wants from needs
- Teach them to develop self-control
- Help them feel secure
- Help them overcome ego or pride
- Teach them about investing early on
source: www.glasbergen.com
Teach them to save early
Teach kids about saving when they are young. Buy or make them a piggy bank. Every time my kids see a penny lying around at home or on the street, I ask them to pick it up. We want them not only to recognize the value of little things, but we also want them to learn the habit of putting their money in the right spot. So, it is a must for kids to learn to save early. The sooner they could save, the more the savings will have time to grow.
Source: Az Quotes
Teach them how to differentiate wants from needs
We usually do this exercise to recognize things that are critical for living and those that are not. We tell them that the basic needs of life are food, modest clothing, modest transportation, and decent size shelter. Clearly, everyone’s definition of modest varies, but for any person with common sense, this should be self-explanatory.
We take our kids when we go on grocery shopping. When we are at the store, we try to emphasize that we buy the important things first: staples, dairy, meats, vegetables, fruits, kids’ snacks, etc. After these, chocolates, toys, or other less important items will be considered as long as they are not excessive.
We also teach them to compare prices. For example, if there are two kinds of yogurt, which one would be a better purchase? Although they may not be able to judge the quality of their purchases quite as well as we would like them to, the habit of analyzing and making informed decisions are developed early.
Teach them to develop self-control
We try to teach our kids self-control by making them wait and process information. For example, when we get to the store, my son would say, “I want a candy.” Then, we say, “if you behave throughout our time at the store, you can get your piece of candy.” Out of this incentive scheme, he behaves and controls himself. Sometimes, it is important to just say “No” to the request. This is a very powerful statement saying this is not important.
My daughter takes piano lessons. Her teacher gives piano dollars (not real money) when her students do well. These piano dollars can be exchange for candies. One day, I was picking her up from her piano lesson, and the husband of her piano teacher said: “Unlike other kids who immediately exchange their piano dollars for candies, your daughter waits until she has already accumulated a lot of money. She sacrifices short term pleasure for a better trade off in the future.” It’s good to know that what we are teaching her is being applied.
Help them feel secure
When children feel secure, they don’t feel they need to keep up with the other kids (or when they grow up, with the Joneses). They don’t have to get their security from someone else. We always tell our kids that our actions depend on our values and are irrespective of what others do. I am not saying we do not look at what others do, but we should be able to evaluate if those actions others do are good. We do not follow the herd unless we see value in being part of the herd.
Parents can make their kids feel secure by spending time with them. Their social, moral, mental, physical, analytical, practical skills, and desire for learning need to be developed by their parents. Love them, compliment them, take them out on dates. Tell them they are doing great!
If these things are not provided for by their parents in their own homes, the outside world will. You or your kids do not want to be in this position. Act now while you still have time to teach them. So, make them feel secure!
Help them overcome ego or pride
My wealthy relatives, even though they were rich, always acted like they were just normal people. They didn’t show off their wealth. They treated everyone with respect and listened to others. They taught their kids values. I learned the same values as well.
I like the fact that one can be wealthy and still relate with people from all walks of life. I teach this approach to my kids as well. I tell them that everyone is precious. They need to respect others. They need to be kind and always be down-to-earth even though they have the wherewithal to be assertive because they have the power to do so. With much power comes great responsibility to serve and help others. Sounds like Spiderman right? I like him.
There are some who will take advantage of your kindness. For this particular instance, you can still be kind, but you can stand your ground and be firm.
Teach them about investing
As soon as you have taught your kids about saving, you need to start teaching them about investing. I teach my daughter some fundamentals of understanding companies. I teach her how to look at the financial statements – just the basics like revenues, costs, and net income. Help them participate in activities that expose them to business operations.
For example, my daughter was called to be the treasurer of the Lemonade Stand project at her school. They bought the lemons, sugar, and other ingredients. Then, they had to sell lemonade. From this experience, she learned first-hand and understood how money worked. I explained to her that the only way you can make money (profit) is if your costs are lower than the price you sell your products for.
She is now thinking of selling pocket warmers at her school during the winter semester. She also suggested that we have a garage sale. We want to continue this effort so that our kids can be financially literate.
As your kids grow, you want to expose them to more business activities. They may not professionally become business people, but at least you have taught them financial skills.
I believe that as parents teach their children these simple things (at times it may be hard), they can help their children become successful in many aspects of their lives.
What are your thoughts about teaching kids about finances? Would love to hear your thoughts.
What is your opinion on allowances? Do you advocate that? And do you think it’s a good idea to tie it to chores and behavior or just give it automatically regardless of work?
Yes, allowances are good and linking them to chores is a great idea because they feel they are purposefully working for something. Once in a while we would give out a “bonus” if we notice that our kids went the extra mile doing something really nice. There are routine chores that we don’t pay our kids for as these are typical home responsibilities.