The best gift money can’t buy?
This came up on Facebook last week: how can we teach children about money and personal finance?
My family was not really money-savvy growing up. We didn’t talk about money much. It was an age of adequate work pensions and investing was something rich people did.
Even though I went to a private school in the UK (on a scholarship) and a good university, personal finance never came up, not in classes nor out of them.
Recently I’ve been teaching my university students about personal finance in elective English classes. It’s a lot of fun but it’s also painful to see just how little these intelligent, curious, and highly educated students know about money.
So how can we do better with the children in our lives?
Well, one thing that doesn’t work is sitting down and making them learn. I tried this with my youngest daughter: we would read a couple of pages of an introduction to finance together and then talk about it. I needed help reading the kanji, she had no idea of the concepts. Rather predictably, the habit didn’t last long.
Instead, I think the best thing you can do for your children is to share your finances with them. Talk about money. Talk about your work, and how much it pays, and how you use the money. Make sure they understand appropriate ways to share this information with others, however 😉
Take them grocery shopping, or even better, send them grocery shopping. My mum had me doing the shopping at home from the age of nine or so when we lived in Spain (probably helped that the shops were only a few hundred meters away). Understanding a budget, comparing options and choosing the best one, and deciding not to buy things are essential life skills, and a lot of children don’t have them.
Open a Junior NISA account for them, and as they get older get them involved with operating it. The more they understand the more interesting it will be, and this will help prepare them for the moment they get control of the account when they reach the age of twenty.
It’s easy to find articles about this topic: Forbes, ten lessons, age by age guide.
What do you think? How do you help your children understand money? Any experiences to add?
Play games like monopoly that use play money. Provide an allowance that is age appropriate. You can’t learn about money unless you have money to manage. Talk about your child’s purchases. Was the toy inside the container as exciting as it looked in the packaging? Were you disappointed? That’s called marketing, and there are many ways that businesses try to entice you to buy crap. Learn to research purchases. And teach the value of taking care of belongings so that they won’t have to be replaced. Talk about the difference between needs and wants. Emphasize the value of experiences over material pleasures. Teach about cost versus value. When the child is old enough, begin to talk about family finances, taxes, mortgages, investments, long-term financial goals. Give your child a chance to invest small amounts and follow the stock market. Let him fail and learn from mistakes. Talk about how politics impact on the economy. Discuss what causes price fluctuations. Talk about ways our institutions manipulate the market with interest rates. Read the news every day and talk about it. Eventually, the important links between news and the economy will start to form. Talk about risk tolerance and how that plays out in terms of investment strategies. I’m sure there is more, but that is just off of the top of my head.
I don’t have kids, but I’ve thought about this. What about teaching investing by using a metaphor like planting a tree. Take your kid into the backyard and plant a tree together. Right now it’s just a puny little twig, but if you take care of it and don’t run it over with the lawnmower it’ll grow into a huge tree. Then compare that tree to the money they are putting into their Nisa account.
Yes, Monopoly is one tool, especially about decision making. The best quote about this I read was “The best way to teach your children about money is not to have any.” I’m not sure that’s true, but it works for some. I mostly agree with CW above.
That’s also something I have got on my mind for some time! I think it’s part of these topics where you can only sketch the terrain and let them fool around and find their own path. Understanding responsibility has not been an easy task for many of us.
I basically agree with everything Cynthia wrote, but particularly regarding the age-appropriate activities. I think we should let the younger ones drive us with their own level of curiosity. After introducing the subject, let them come up with questions. You might spark something great in one kid but barely get an answer to your questions from another sibling. And you know what? That’s fine!
The idea of shopping with a budget is excellent, especially if it takes the form of a challenge against mom or dad for later discussing the decision-making process: value VS price, brand names, preferences and other factors.
With the teens, one topic that we can’t afford to neglect is credit! The first time I applied for a credit card, it felt like I was selling my soul to the devil. But to most of my classmates, the card was a license to bust their personal finance. However, having a good credit rating is almost as important as having a degree nowadays.
Hands-on experience with investment is great when the kid is old enough but also shows interest. It has to come, somehow, with an understanding of it as an industry. With the bursting opportunities and products also come more ways to meander and ultimately get lost into the hype factor. Kids and teens are especially susceptible to fall for the “but everyone else does it” argument!
There’s not one best way for sure, but fortunately there should be enough time! Just like Ben, my parents never really cared about finance and talking about it with us, however, here I am today investing money and having healthy finances. So how could it go any worse by taking time to talk about it with my kids at their own pace?