It's that time again. The new year has arrived, bringing renewed optimism. It's the time when we make vows to improve some area of our lives. Some decide to stop an unhealthy behavior. Others choose to start building healthy habits.
Unfortunately, 45 percent of Americans usually make a New Year's Resolution with a less than stellar success rate of 8 percent. I want to help you with a very important goal that you can easily accomplish -- teaching your kids to be financially literate -- and I will continue to be here, throughout the year, to help you. I promise it's going to be easier than your decision to replace your ice cream sundaes with non-fat yogurt and finding time in your hectic schedule to get to the gym three times a week.
Financial literacy is the key to a financially secure and independent future for our children, but it is rarely even touched upon in our schools -- the task falls on parents. It is never too early or to late to begin, and parents are surprised to find that they become more financially responsible as they teach their kids. Even grandparents and retirees can benefit from a refresher course, as we have changing financial needs throughout our lives.
In this blog, we are going to begin with the youngest kids. I will help you with different age groups in subsequent weeks. You are going to be teaching your kids to earn, save, and spend money wisely, and we are going to start at the very beginning.
AGES 3 to 5
For very young children, you are going to have to explain what money is. When they're able to understand that coins are not for eating, teach them how to identify a coin by its size, name and number or value. Make the lessons fun and simple. Put a pile of assorted coins on the table and call out the name of a coin and see if your kid can pick it out.
AGES 5 and UP
When children understand that Mommy and Daddy go to the store and buy things with money, then they are ready to start to learn more about money. Usually children pick up on this relationship between money and buying things at a young age. To check, ask your child: "What do Mommy and Daddy do with money in a store?" If they understand that it takes money to be able to leave the store with merchandise, then they are ready to begin teaching simple money management techniques.
To do this, your kids must have real money of their own to manage. Rather than handing over a sizable sum of money or doling it out a dollar at a time, a weekly allowance give the child a source of income that he or she can learn to make decisions about. Your kid is ready to begin "earning and learning."
Start your kids on my Work-For-Pay Allowance System. They do two types of chores: Citizen of the Household chores, where they don't get paid, and Work-For-Pay chores. Citizen of the Household chores teach them that good citizens of the world, the community and of the family, help out because it is the right thing to do. The Work-For-Pay Allowance System teaches them how to earn and budget their money. I started my own two kids on an allowance when they were 3 and 6 years old. Use an easy rule of thumb: Their allowance should be the same number of dollars as their age. Use this rule until they're grown.
There are three basic areas of money management we will focus on, and that our kids will grow up with -- I call it my S.O.S System.
- Saving. Some portion of the allowance is to be allotted for both short-term savings, like for a special toy, and long-term savings, such as a bicycle or college fund.
- Offering. This is a small amount of money set aside for charity. However small the sum, it is a valuable way for the parent to teach personal values though money by showing the child how to share their good fortune.
- Spending. Depending on the budget you develop with your child, part of the spending money may go to specific expenses such as lunch money for the young ones, to total responsibility for the clothing budget for older teens. At any age, however, there needs to be some money that is the child's discretionary fund to spend as they wish (with limitations you set -- your pre-teen isn't going to be coming home with a motor bike).
You have to talk to your kids about money from a very early age, as this is when good habits start to form. Make sure that your kids come into contact with money, learn where it comes from and understand how it is used. Encourage your kids to play "store" at home. Let them put coins in the parking meter. Always use the real world as your classroom.
Be sure to check back here regularly, as I continue to address family money matters for varying age groups. In the meantime, to help you educate your young children, you can download my free game apps for the iPad and iPhone that are a revolutionary new way to teach kids ages 5-8 about money and responsibility via fun game play.
Good luck avoiding those ice cream sundaes. Happy New Year!
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