Early Financial Education Provides Kids With A Great Start

January 20, 2016

Photo credit: monkeybusinessimages-istock-thinkstock

Financial literacy is a topic getting a lot of press lately. We are realizing that along with science and social studies, our kids also need to learn something about “the real world” where they will have to pay bills, manage a budget, and become educated about saving for retirement, opening a college fund, and purchasing life insurance. At least some of this education should take place while they are still in school so that concepts about the importance of money management are retained for a lifetime.

I remember being an eighteen-year old freshman in college with no clue about managing finances. I always had a part-time job while in school, but that income (low as it was) was mainly for discretionary purchases like movie tickets or the newest cd. (Yes, this was the 90s and those songs are now playing on the “oldies” station.)

During that freshman year, I was hit with a barrage of credit card offers in the mail, at the student union, and whenever I went shopping. There was no escaping the offers.  Mom and dad aren’t there to filter out unwanted messages and protect you from your own self.  They also are probably no longer providing any type of allowance and even if they are paying your tuition or rent, they probably are not too excited about paying for those other “necessities” such as takeout or new clothes. But in the eyes of a naïve 18-year-old, that credit card was a ticket to newfound financial freedom.

The first few months of making payments were easy, because they were pretty low. Eating out on Friday night or buying a t-shirt at the mall surely couldn’t be all that expensive. By Christmas, I realized that I couldn’t pay down much more than the minimum monthly payment. Most of my income was going toward other less-discretionary items such as car insurance bills, grocery bills, and the daily necessities of student life.  I had no room for discretionary purchases,but I didn’t figure that out until later. Paying off a credit card with a balance and compounding interest is much harder than charging it in the first place. Lesson learned.

Without a doubt, financial literacy is a topic that is no less important and often more useful than many other topics we learn about in school. While our children may not need to remember the periodic table at age 30 or be able to solve complex equations, they will surely need to balance the family budget.

Fortunately, Colorado schools are now teaching financial literacy basics starting as young as preschool, but we should also teach these lessons at home. With young children, the lesson may focus on earning an allowance and saving short-term for a toy or a game. As children get older, it is important to teach the value of long-term investments. Some parents even require their child to place a certain percentage of their allowance or work earnings in a savings account. Help your child create a budget of their own and see how it works.

Don’t know where to start? These days, there are a ton of free apps out there to help you teach your kids and teens understand budgeting and track their money. Since most families have smart phones and tablets, the following apps can give you a hand in helping your kids learn about finances at any age:

  1. Oink by Virtual Piggy Bank allows teens to have parent-monitored spending accounts. It is a digital wallet that the parents load and set limits for spending. As the kids get older and start getting jobs, they can load the “wallet” themselves and track their spending.
  2. FamZoo can help track saving and spending habits for the entire family from preschool on. In the form of prepaid credit cards, this online program/app works with you to teach your kids about money management and frugal spending.
  3. Mint is a great online program/app that links to real accounts and not only tracks your spending but teaches you how to budget. You have the ability to do deposits and withdrawals and, just in case mom and dad need the help, it’s great for anyone in the family who needs a hand with budgeting.

For the younger kids in the family, maybe a game or two would help them start to understand that your plastic credit card won’t pay for the world. The following free apps can help your young ones to visually see the money they are working with and that budgeting is important.

  1. Celebrity Calamity gives kids a chance to be a big celebrity who can spend what they want. Trick is, they still have to budget. They will see the results of overspending and have to problem solve to get it right. For ages 6 and up.
  2. Green$treets: Unleash the Loot teaches kids  how to take care of an endangered species before they let it back out in the wild. They need to budget for food, shelter, and toys for the animals to get they ready to be released. For ages 5-8.
  3. Renegade Buggies is a fast paced shopping game where kids accumulate “buggie bucks” which they later use for saving and investing. For ages 6-11.
  4. Piggy Bot, unfortunately on iOS systems only, gives kids a visual interpretation of how much they have in their virtual piggy bank and allow them to manage it. For ages 6-8.

These are only a few suggestions of the many that are out there. For more information and ideas on teaching your children financial literacy, visit the Council for Economic Education or the JumpStart Coalition for Personal Financial Literacy.

However you choose to teach your kids about financial literacy, you will want to do it before you drop them off at the dorm, so allow yourself plenty of time because with real life experience managing money, he or she will be more prepared for the “real world” and more financially savvy.