Few things are more important in life than money management. Teaching our children the way that money works is vital for their success in life. This involves teaching them about more than simply how to keep to a budget. Teaching our children money management looks different depending on the ages of your children. Even the youngest kids can be taught about money.
Anyone who has played a sport knows that you can’t win a game on offense alone or on defense alone. You need both to win. The same is true in finances, and we have an incredible opportunity to teach this to our children. When it comes to finances, offense is what you earn and defense is how you spend. To play offense, you work hard. To play defense, you conserve and manage your spending.
Your children can learn about this at just about any age. If you have an elementary-aged child, you can create opportunities for him or her to play “offense” and “defense.” If you have a high-school student, this will be a little more “real life” as it could involve teaching them how to apply, interview, get a job, manage their finances, and spend less than they earn.
How To Teach Money Management & Financial Literacy
Chores and Earning
Financial advisor and host of the Chris Hogan Show says that he puts his kids on commission. His kids have a certain number of chores which they are expected to do for no pay. However, he keeps a chart of extra chores he needs done around the house, and his kids can sign up for these. He pays them extra if they do the job exceptionally well. This instills in them the value of a job well done. This will follow them throughout their lives, likely resulting in an excellent track and glowing references. This will open more doors for them in life than a high GPA alone could.
For the youngest students, simply learning the value of money and work ethic is enough to get them on the road to one day being great money managers. If your children already have chores they must do, make a list of extra chores they can do for money. Then, when they ask for something, you can look up the cost of the item and then count what they have saved. You may choose to give them the option of doing even more extra chores to get to their goal faster. This will teach your children that hard work pays off.
Your older children likely still have some responsibility in the home, but they are also likely to have responsibility outside of the home and an outside income. You can help your high schooler identify wants, such as a car, and make attainable goals and strategies to reach that goal.
Understanding Debt and Interest
Consumer debt is one of the most debilitating things in modern day society. So many people, especially young people, believe that they can afford something not when they have enough in the bank to pay for it in cash, but when they can make the minimum payment on a loan as large as they are allowed. This is a dangerous practice that keeps people living paycheck to paycheck and ends up costing thousands of dollars in avoidable interest. You can teach your children the value of living debt free, and you can begin teaching them early. If you child is old enough to understand these numbers, look up a mortgage calculator. Put in a number for a mortgage, and then change the other numbers such as the interest rate, the amount of the down payment, and the term. This simple exercise will help show them how interest works, and why it is so important to save and to live within your means. You can do this same kind of activity with a credit card, showing them how much they could be approved for and how much more it will end up costing them if they use the credit card and make minimum payments versus if they had bought the desired item outright. This same idea can be used to show your child how easy it is to end up “upside down” on a car. If they can see how quickly a vehicle depreciates in value and how quickly interest adds up, they will be more likely to avoid that kind of debt in the future. Precious few young people understand financial literacy in this way. They don’t actually know what they can afford, and they have no idea how much money they are wasting in interest. Teaching these things in middle school and high school will give your children the knowledge they need to avoid the kind of financial mistakes many of their peers will make.
If you have students in middle school or high school, you can take advantage of some of the best money management books ever written. I highly recommend that everyone reads The Millionaire Next Door by Thomas Stanley and William Danko. I also recommend Rich Dad Poor Dad by Robert Kiyosaki. If your son or daughter has access to this information before college, he or she will have an incredible head start on building wealth.
Winning at Finances
Home educating gives you an amazing opportunity to teach your children these skills of playing “offense” and “defense” in their finances. Very young children can learn the value of hard work and money, and as they get older, you can begin to teach them about interest, debt, and investing. Financial literacy is a knowledge base that too few people understand. You can give your kids the chance to get a head start in life by avoiding some of the pitfalls that are common to young people, working hard, saving, and investing. This will give them a huge advantage in life, and home educating gives you plenty of time to work these lessons into their daily routine.