Life off duty: 6 tips for teaching kids about money

Parents must teach their children financial literacy by setting a positive example

William Lowndes once famously said, “Take care of the pence, and the pounds will take care of themselves.” He could have been talking about anyone, but I’d like you to think for the purposes of this article he was talking to our children.

Long before most children can add or subtract, they become aware of the concept of money. Any four-year-old child knows where their parents get money — the ATM, of course. Understanding that parents must work for their money requires a more mature mind, and even then, the learning process has its wrinkles.

The Financial Planning Association offers a few suggestions for parents that want to help their children with basic financial literacy.

1.) Buy a Piggy Bank
Young children need this tried-and-true symbol of saving. They need to know there’s a place to put pocket change they don’t spend, and they are free to tap it only to accomplish a goal that the both of you discuss.

This isn’t about buying stuff.

It’s about setting goals.

2.) Don’t Miss Teaching Opportunities
Watch your child’s behavior — see what they want to buy. Ask them how they plan to pay for things. This is your window on whether your money messages are getting through.

“I want” and “I need” are always opportunities for you to teach.

Some pretty serious money issues can come out of the mouths of babes.

Listen to them.

Also, teach your kids to make spending “wish lists” throughout the year — these are not only lessons in delayed gratification, but also in prioritizing needs and wants.

3.) Open a Savings Account
If small-balance passbook accounts still exist at your bank, do the old-fashioned thing and go with your child to open one.

Make sure they keep their bankbook or monthly statements in a safe place, and make sure they deposit funds at least once a month to get in the habit. You might also consider mutual funds geared toward children — the best ones have great educational value.

4.) Handle Money Mistakes Carefully
A child will make mistakes with money — they’ll lose it, spend it on the wrong things, or give it away to others at the wrong times.

It is generally a good idea to ask the child whether that was a right use for the funds and what they might do the next time.

5.) Be Open About Investments
Kids are sponges. They know if their parents have investments just by watching what is in the mail.

Start talking about why you buy stocks, bonds, or mutual funds to help pay for their education. If your child asks you to buy a book or subscribe to a magazine or newspaper so they can learn more, don’t think twice — just do it.

6.) Talk About College Early
Speaking of learning... Even if you plan to pay your children’s entire higher-education tuition, you need to talk about the financial investment college represents long before they go.

You can also talk about whether your child will have to pay any expenses on their own and how they will earn the money. The massive investment college represents presents a great opportunity to discuss what the most important things in life really cost.

Why Financial Literacy?
In 2011, the United States had a total resident population of 312,833,000 — making ours the third-most-populous country in the world. People under 20 years of age make up more tha a quarter of the United States population (27.3 percent) and people age 65 and over make up one-eighth (12.8 percent) in 2009. The national median age was 36.8 years.

Cecilia Shiner, senior analyst at LIMRA Retirement Research, recently stated that “improving general financial literacy could lay the groundwork for retirement knowledge. Too few consumers understand basic financial concepts and this lack of knowledge can hinder their savings efforts.”

Ms. Shiner noted, “There’s a lot of attention on the baby boomers (78 million) but there are nearly 116 million Americans aged 20 to 47, and as an industry we need to help these Americans plan and save for retirement.”

Given the fact that millennials represent 116 million Americans, it is imperative that basic financial literacy for children begins at home.

End Notes
LIMRA is the industry trade group for the Life Insurance Marketing and Research Association. For sound investment advice, visit Edwin Stephens’ website. Securities transactions through McClurg Capital Corporation. Member FINRA and SIPC.

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