Five Ways to Raise Financially Savvy Kids

Do you want to help your children develop the ability to be financially successful?

Studies show that math is the most important aspect of financial literacy. Financially literate adults make their money work for them, optimizing every dollar and opportunity. They need math skills to spend, save, and invest wisely. You can start developing the necessary math and financial literacy skills when your kids are young. Here are five simple ways to get started.

Talk Openly About Money

It may feel awkward to talk about money with your kids at first, but it is important. They need to understand the nuances of the financial decisions you make which may not be obvious. How you spend, or don’t spend, money shows what you value.

Do you spend money on vacation, home improvements, supplemental education, and nice clothes? Why or why not? They will likely go to friends’ houses who seem “rich” or “poor” by their own standards. Encourage them to explore their feelings about the disparity. Remind them that appearances could be deceiving. The “rich” friend’s parents could be using credit cards and feeling stressed out by debt. The “poor” friend’s parents could be living way below their means so they can pay for college tuition or buy a house. These conversations start them thinking about their own relationship with money and introduce concepts like long-range planning and risk tolerance.

Teach the Basics

Kids see you writing checks and using credit cards and debit cards and may not understand you are using real money. You put a plastic card in a machine and you get to buy things, or out pops cash. Explain the differences between checks, credit card, cash, and debit cards. Include how long term savings vehicles, like CDs, work.

Describe loans, interest, and payments. Remind them that money spent on a credit card is a high-interest loan. Discuss how income, debt, credit rating, collateral, and savings affect your ability to buy things like cars. Show them a bank statement with utility bills and other things they may not know that you pay. Explain your mortgage or monthly rent payments and the consequences for failing to pay. Your discussions will pave the way for teaching them to think about money.

Encourage Budgeting

Teach your child how to budget using the money they earn and get as gifts. Help them divide their money into categories, like “fun money,” “money for buying gifts”, “savings”, and “donating to important causes.” Talk about what percentage of the total should go into each category to align with their values and lifestyle. Have your child calculate these percentages to reinforce math skills.

Talk with your children about how they want to spend their fun money. Show them if they spend all their money this week, they won’t be able to get what they really want next month. Experience is a great teacher. Let them make some mistakes and go without what they really want. It shows them how little expenses add up. If they spend all their fun money on impulse purchases, they won’t have enough money for something they really want.

Set Up A Savings Account

Help your child set up a savings account. It can be a real one at a bank or a homemade one. Create a 529 college savings plan for them and give them an incentive to start saving for college. You could match money dollar for dollar. If they get twenty dollars from a relative for their birthday and they choose to put $10 in their college savings account, you will add another $10. By doing this, they will develop good financial habits and reinforce long range planning.

Equip them with Math Skills

Math skills are important for understanding concepts like interest and investing. Adults who feel confident with math have the confidence to analyze financial decisions. https://www.wellesley.edu/news/2015/november/node/76096 If your child lacks math confidence, call Mathnasium of Littleton at 303-979-9077. We can support your quest to raise financially responsible children.

You may also find these resources valuable:

Does Your Teenager Have the Necessary Math Skills to Make Informed Decisions?

https://www.cnbc.com/2014/07/09/want-to-improve-your-financial-literacy-learn-math.html 

https://quizlet.com/30870600/everfi-financial-literacy-savings-module-flash-cards/

https://www.sec.gov/reportspubs/investor-publications/investorpubsintro529htm.html

https://www.fdic.gov/consumers/consumer/moneysmart/young.html

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