Financially Savvy Kids Learn at Home
Some of the inherent responsibilities of parents include protecting their children and preparing them to be responsible adults in our society. Teaching children the proper management of their financial resources helps to accomplish both of these goals.
If the children in your family are similar to my own (and I would bet there are far more similarities than there are differences), they probably do not enjoy being lectured by their parents, nor do they learn much thereby. So how else are they supposed to learn to be financially fluent if they don’t listen to what we tell them? Well, we show them.
Further suggestions will follow today’s blog, but here’s an easy, fun and effective way to teach children that money does NOT grow on trees and that it must be properly managed and controlled:
- Pull out the game of Monopoly or any other board game that has play money in real denominations. If you don’t have such a game, you can print some play money from www.printableplaymoney.net.
- Gather the kids around the table to “play” a game. Count on spending anywhere between 15 and 45 minutes for this activity. This game is best for children 8 or 9 years old or older, since they’re getting to the point of being able to grasp abstract concepts. You can tell them you’re going to play a game to show them how Mom and/or Dad makes and spends money every month.
- Explain the rules, such as, “We’re going to count out how much money Mom and/or Dad make every month and put it in the middle of the table. Our goal is to spend it on everything we need and then on things we want without running out of money.”
At this point, you may choose to explain your feelings that you are sharing information that is only meant for your family, and that you are trusting the children not to talk to their friends or to extended family about how much money Mom and/or Dad make.
- Enthusiastically and dramatically count out of the bills how much money your household makes every month. This should be gross income (before taxes and other deductions). Enjoy the look of astonishment on the children’s faces while it lasts. For many, any amount over $100 might lead them to think that the family is RICH!!!
- Explain that the first thing that comes out of the monthly income is Taxes. Remove from the pile of money in the middle of the table the amount of taxes you pay each month. To raise a financially responsible child, you should explain the benefits that come from paying taxes, including security provided internationally by our armed forces, security provided locally by the police and/or sheriff, transportation infrastructure, schools, laws, health and human services, public transportation, and more. Avoid complaining bitterly about taxes, though it may be educational to explain how we have the right and responsibility to vote for representatives in our government who we hope feel the same way we do about how taxes should or should not be used.
- Next, explain that other amounts come out of your paycheck before you receive any money, including Medicare and Social Security (FICA), in addition, possibly, to insurance premiums and retirement account contributions. Remove the amount of your monthly deductions from the pile of money in the middle of the table.
- Next, explain to the children that you have committed to paying yourself first, in case of emergencies, so that there is a specific amount that you put into your savings plan right off the bat. Let them know that this amount is non-negotiable, and that as they grow up, you expect them to do the same. Many children, even fairly young ones, may take comfort in knowing that their parents have a plan in place in case anything unexpected happens. Remove your monthly savings contributions from the pile.
- Then, ask the children if they think you should next pay for things you need or want? Explain what your survival needs are and remove that money from the pile. Typically, needs include shelter and security (rent/mortgage and their corresponding insurance and utilities), food and water (NOT including dining out), protective clothing (the very basics), and possibly medications or medical procedures.
- The next expenses to come out usually include things that make life comfortable and convenient, like transportation costs, child care, additional clothing, school activities, air conditioning in the summer, etc. You may also include other obligations and loan repayments (credit card, student loan, signature loan, etc.).
- Continue to remove money from the pile until you’re left with “extra” money (usually pretty scarce). Remember to calculate the monthly amounts to set aside in order to take care of periodic expenses like vacations, car and home repair, holiday and birthday gift giving, etc. You may also consider including the children’s allowance or amounts they can earn through chores.
Going through this exercise every couple of years or so will help your children to realize that money is not an infinite resource, that it doesn’t grow on trees, and that their parents are in control of their finances. It generally has the added benefit of stemming the continual flow of the “gimmees” and the “buymees.” “Give me this” and “buy me that.”
Finally, letting our children “see” how important budgeting is to us will lead them to value it as well.
Have fun with this activity, and let me know how it goes.
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