The Other Literacy…Financial Literacy

We all know that literacy, the ability to read and write, is an important life skill.  It’s so important that we often create an environment at home to reflect this.  We start reading to our kids from an early age, years before they know how to read themselves.  We surround our kids with all kinds of reading materials from books, to magazines, to newspapers, to grocery lists. 
 
And then, to underscore the importance of reading even more, we read in front of them.  Yup, we pick up the newspaper or magazine and absorb the words on the pages while our kids are watching.
 
When they begin to read on their own, we ask them questions about the plot and characters. 
 
At school, monthly book orders are sent home and assemblies bring in authors who talk about how they write their books.  We even reward kids with stickers on classroom charts or refrigerators at home reflecting pages read. 
 
It’s hard to grow up in an environment such as this and miss the message that reading and writing is important.  

The Money Connection:   There’s another type of literacy which is just as important that isn’t quite as integrated into our environment.  Financial literacy.  Simply stated, financial literacy is the ability to effectively and comfortably deal with issues relating to money in a way that benefits us.  It’s important for things such as budgeting, understanding credit, and investing.  

We need to be just as passionate about our kids learning financial literacy as we are about teaching them reading and writing literacy.  But since financial literacy in the elementary and middle school curriculum is not where it should be, we’re going to need to do double-duty at home.  Without obsessing about money, this simply means that we need to be aware of opportunities to sneak in a few life lessons.
 
Here is a starter list of ways to create an environment where learning about money is simply a natural part of your everyday routine, thus underscoring its importance: 

1. Talk about money from an early age – how it is earned, how there is a limited supply, the importance of making good spending choices, how to be a good consumer, etc.

2. Just like a book is the tool we use to teach kids how to read, money is the tool we use to teach kids how to become good money managers.  Give your kids money on a regular basis (an allowance is the most popular way) and then have them be responsible for their discretionary spending.

3. Create a list of extra jobs kids can do around the house to earn additional money.

4. Share your savings goals with your kids and have them create their own.

5. Have tweens and teens keep track of their spending in a registry so they get an idea of where their money goes as well as learn how to keep a running balance.

6. As an incentive to get your child to save, offer to match their savings dollar for dollar.

7. Always look for teachable moments, such as being out shopping, to tie in important money ideas.

Kids learn to become good readers through reading.  By the same token, kids learn to be good money managers through doing money.  Providing your kids with money to manage and initiating on-going money discussions at home will help build the financial foundation so necessary for success in today’s society.

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Getting Kids EXCITED About Saving Money

When Ryan was seven years old, John and I discovered he had a spending problem. As serious as a seven year old can have. It was all about Pokemon cards. Each week he would drain his money on the cute cards in hopes of striking it rich with a rare Charzard.

But not wanting that spending problem to grow into a bad spending habit, we decided to introduce Ryan to compound interest. We wanted to see if the idea of money growing on itself (because he saved it), would have an impact on him. We also wanted to have the idea of saving his money come directly from him.

So we sat him down at the computer, along with his brother Nathan who was a terrific saver already, and plugged 10% monthly interest (parents can do that!) into a spreadsheet. The graph that was generated on the initial $100 we set up, shocked him. Then on came the lightbulb when he realized that saving his money would mean he would end up with even more money. He was a believer. It was this moment that began our work on KidsSave.

Compound interest. Einstein, a very smart dude, called it the eighth wonder of the world. He also called it the greatest force in the universe. And if anyone should know about the universe and force, it’d be Einstein.

And it was compound interest, interest that grows on itself, that made Ryan the saver he is today.

So I’ve put together two videos to illustrate the power of compounding so that you can show your kids this “magic” and get them just as excited as Ryan got. Of course, you could also use our kids’ savings and money management software, KidsSave, as it was the very first thing we designed for the program.

Here’s my most recent video. It’s on the Rule of 72. Don’t know the beauty of the Rule of 72? Then take a peek. It’s pretty amazing. And if it gets your kids excited about saving, let me know!

And after you watch the video, ask your kids what would happen if they invested $2000 instead of $1000…

Watch this VERY COOL video.

Personal Finance for Kids?

So it happened again to me today, and it’s happened enough that I decided to write about it…and solicit your help.

I was chatting with a woman I just met about this, that, and the other, when, inevitably, the question so what do you do? comes up. She’s a stay-at-home mom, nice, and I told her I was a kids’ personal finance educator.

“You can teach personal finance to kids?” she, and just about everyone else, asks.

Now don’t get me wrong. Until my youngest, Ryan, began to exhibit extreme carefree spending tendencies, the idea had never really occurred to me, either. At least, not beyond giving him an allowance. But if you think about it, setting up an allowance system is most definitely a form of personal finance.

At least it should be.

It’s not enough that kids get money. It’s important that we teach them what to do with that money. Things that we do with our own adult personal finances: save, spend, share, invest, borrow, budget. We need to do it in a way that gives kids real, hands-on experiences with their money so that they’ll get the practice they need before we send them out into the world.

And the good news is, it’s not that hard to do. Even if you don’t feel “qualified”. And while we’re doing it, we need make ‘personal finance for kids’ a recognized phrase.

So I’d love to have your help. It would be great if you could help spread the word about the importance of teaching kids money while they are still young.

In addition, I want to be a resource for parents. My Raised for Richness Facebook page is filled with all kinds of tips and research studies. It’s a great place for parents to start.

I am also working hard to make our website a resource, as well. We’ve included a bunch of free stuff recently.

And then there are the Beyond-the-Piggy-Bank Challenges filled with the specific steps needed to begin teaching personal finance. I do these periodically and if you email me, I’ll get another one scheduled soon.

So let’s start a movement! Let’s get the word out make ‘kids and personal finance’ just a regular part of our everyday language. Together we can make a difference.

Should We Teach Financial Literacy?

I just read an interesting article that basically said that teaching financial literacy in school has no impact on kids learning to make healthy money choices. If you’re interested, here it is.

The article quoted Professor Emeritus Lewis Mandell who apparently has done over 15 years of research on the topic. And I sort of agree with his assessment. One or two classes in high school is not going to create adults who all of a sudden know how to make decisions that will benefit them financially. But I also think that one or two classes is better than nothing.

Here’s the thing. What teaches kids how to make decisions that will benefit them financially is actually having kids make decisions about money…their money. And it needs to start in the elementary years because it takes years to learn. Years of making choices, learning from mistakes, setting and achieving goals, tracking money, finding ways to earn, understanding the power of compound interest, beginning to invest. In other words, it takes a sustained effort of doing money that teaches the best lessons.

And the professor agrees with me! As depressing as it was to hear him say that we shouldn’t even bother teaching kids financial literacy in school, a glimmer of hope came from his suggestion that giving kids real-life, hands-on experiences could actually make a difference. Of course it does.

But that doesn’t mean we shouldn’t continue to find ways to reach kids through our educational system. For a lot of kids, it’s the only information about financial literacy they’ll get…until they begin to learn it all on their own.

Teaching Kids to be Wise Consumers

Teaching kids to be wise consumers requires that we have them reflect on their purchases…before they spend the money. And an easy way to do this is to teach them the Three Money Questions:

Do I need it?
Can I afford it?
Does it add value to my life?

Do I need it? This gives kids practice in thinking about the difference between needs and wants. If the item is clearly not a need, and for kids this is the majority of their spending, then at least they have acknowledged that they are pursuing and willing to plunk money down for a want. Which leads us to…

Can I afford it? This one is simple – if you don’t have the money, you can’t afford it. This is a good opportunity to help your child create a goal and work towards it.

Does it add value to my life? This takes time to learn. Most kids will insist that they can’t live without the particular item/experience and will move forward with their purchase. Revisit their decision after several days or weeks by having them reflect on whether or not their choice truly enhanced their life.

The key to the Three Money Questions is to model them with your kids. When considering a purchase, talk through the questions out loud so that your kids can “see” how decision-making happens. It may seem silly at first, but if we want our kids to learn how to problem-solve through a potential purchase, they’re going to need to hear how that happens.

If your child is considering an expensive purchase, a good strategy is to have her create a pros and cons list. This helps to clarify her thinking in a very visual way. And it’s an unbelievably wonderful tool that she’ll be able to carry with her beyond simple money purchases. Should I marry this guy or not? Let me make a pros/cons list. Okay, I’m kidding, but you get the idea. 🙂

The Power of Relevance in Teaching Kids Money

Relevance is an unbelievable teaching tool. That’s because it’s much easier to learn something when it’s relevant to our lives. And, often, it’s more fun.

Consider a child studying a unit on growing plants in her third grade class. When the teacher starts talking about how healthy plants grow, her little ears perk up. This year, her dad put her in charge of he family vegetable garden, so learning about soil, watering, and weed control was meaningful to her; it had become relevant to her life.

The power with relevance is that it establishes a purpose for the learning. And when things have purpose, the learning becomes more powerful. So if we can connect the learning that kids are doing to their every day lives, in other words, if we make it relevant, then deeper learning and understanding will take place.

The Money Connection: If we want our kids to learn about and understand money – how to save it, share it, spend it, and invest it wisely – then we need to find a way to make it relevant to their everyday lives. And the best way to make it relevant? Give them the responsibility of managing their own money.

When they’re in charge, all of a sudden, learning how to effectively manage that money becomes meaningful and, by default, relevant. If they want to buy that really cool cell phone, then learning how to create a personal financial goal becomes relevant. If they want to invest in their favorite clothing company, then researching the company has now become relevant. And if they expect to save enough money to bring with them on vacation, then learning how to make good spending choices has become relevant.

When it comes to teaching kids about money, there’s no better lesson than to use the power of relevance. When it’s your money, it’s not that important. When it’s theirs, it’s a whole new story. And this story has a happy ending.