How to teach your kids the financial lessons that schools don’t
Jill Hitchcock is the senior executive vice president responsible for the U.S. private client group at Fisher Investments, a fee-only investment adviser.
If you’re like me, virtual learning amid the COVID-19 pandemic has made you more involved in your kids’ education this year. Teachers are doing their very best to adapt, but when my kids complain about some of the work they have to do, I find myself secretly agreeing with them!
A good financial education can make all the difference in a family’s long-term success, yet practical finance is nearly impossible to find in a school curriculum. I mean really, have you ever used the Pythagorean Theorem in real life? I haven’t. But I have done things like set a budget, calculate monthly car payments, and start saving — even when what I really wanted to do was have fun with my money.
Teaching kids about money is harder than it sounds. You aren’t just trying to teach them math, but also how to grasp an entirely amorphous concept. Kids almost never see physical money exchanged, especially as we resort to even more online shopping this year. They just see us click a button and — poof! — a box shows up on the porch.
So, if you’re finding yourself more involved in your kids’ schooling this year, here’s how to give them a head start and begin teaching them about money and value now.
Use relatable terms to teach kids about value
Interestingly, video games have helped teach my boys (ages 8 and 11) about this. Think about it: Video games almost always have some “points” system that involves some sort of exchange of value. Teaching kids about money can mirror what they’re already doing in video games. You want something of value? Figure out a way to get it! You can spend all of your points (or coins, gems, etc.) on one big-ticket item or a lot of little ones — similar to real life.
My sons each have a bank account — linked to mine — with debit cards. I can easily transfer money to them when they do chores, and they can use their own debit card to buy things. So, when they buy Pokémon cards in the checkout line, I just pull up their balance on my phone and they can see that money leave their account — tax and all! One kid blows through his money immediately, while the other hoards it.
Show kids that money must be earned
Teach your kids the value of money by having them earn it. This isn’t a new concept, but I think it’s critical.
There are different ways to do this, but I use a “jobs bow,l” which sits on our kitchen counter. In the bowl, there are dozens of pieces of paper with a different job or chore written on each and how much I will pay for it. If my kids want money, I say, “Great! Go pick a job.”
Jobs that take longer pay more than the ones that can be completed quickly, and it’s up to them to decide which jobs to take on. Oh, and for some parenting fun, you can come up with some doozies! “Wash all of the baseboards!” or “Scrub the front porch!”
Just remember you’re doing this for the teaching value — not because you expect the job to be done particularly well. If you want an immaculate car, take it to the car wash. If you want to teach your son or daughter the value of $5, send ‘em outside with a vacuum, a hose, and a sponge!
Help your kids understand trade-offs
While my kids are too young to know the full cost of our house or my car, I do try to help them understand trade-offs of our decisions.
For example, I give them a say in how we spend our vacation budget. Whenever we plan vacations, I’ll give them a couple of choices and explain the trade-offs. Would they rather go to Hawaii for a week, which is one long trip with costly airfare and hotels? Or would they prefer to go on smaller, more frequent surfing trips here in California?
I’m also willing to tell them the cost of some items and explain what spending that money might mean.
One time, we were on a trip and rented jet skis — not cheap! They wanted to keep riding, so I told them the cost and what they’d have to give up in exchange: less eating out for dinner and more cooking in the Airbnb, or maybe one less excursion later in the trip. After some debate, they decided not to keep the jet skis. But you must follow through on the sacrifice if they choose the instant gratification!
Then introduce foundational financial concepts
Because I’m a dork, I created a PowerPoint presentation with saving and investing basics, and I made my kids a deal: If they sat through my presentation, I would put some money into a brokerage account for them and let them choose the investments.
Having started their accounts in this volatile year helped spur some fun investing questions like, “Is now a great time to invest in the travel industry, or is it a terrible time?” There aren’t any right answers, but even kids as young as my 8-year-old have strong views on what might do well — which is fun to discuss!
But you don’t need to build a slide deck. You can start teaching your kids concepts like what a stock is and how compound growth can influence your savings using a quick Google search or in regular conversation.
When one of my sons asked for a smartphone, I told him the cost and how if he used that same amount of money to invest in that company’s stock instead, it could grow a huge amount over his lifetime. While this wasn’t the answer he wanted, these reminders can help kids understand the unseen consequences of spending.
So this year, while your kids are learning abstract theorems and you may be more involved in their virtual education, teach them practical financial lessons that schools often overlook. Be creative and do it in relatable terms they can understand — PowerPoint optional. They will thank you for it someday!
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