Teaching Kids to Set Financial Goals

Long story short, kids who know how to delay gratification tend to grow up to be adults with higher paying jobs, have happier relationships, are physically healthy, and are persistent in their pursuits. Let me know if you want the details to this longitudinal research.

Using money, we have an unbelievable way to help our kids learn to delay gratification. It’s all about setting personal financial goals.

There are three types of goals kids can set:

~to purchase a specific item
~to save a certain amount of money
~to reach a certain account balance

Giving kids a reason to set a financial goal is important. This gives them an incentive and a concrete reason to save. Goals, like saving for a coveted toy, are more tangible to young kids. Tweens and teens can begin to work towards saving a certain amount of money which is can then be used as their investing money. Kids LOVE the idea of doing something as grown-up as investing. And if they see how much money can grow over time due to compound interest, they’re usually quite excited to get saving.

Goal duration should be short for young 5-6 year olds, maybe a week or two. These kids need to be successful in reaching their first goal because it will encourage them to set another one. As they get older, increase the time. You may even want to consider matching them dollar for dollar. Not only is this a good motivator, but it allows them to reach “pricier” goals faster.

Another strategy for getting your kids to reach their goal is to introduce them to some Above-and-Beyond jobs. These are jobs that your kids can do around the house to earn extra money. This has the added benefit of teaching kids the value of a dollar as when they work for money, it tends to have greater meaning.

Having kids set financial goals is the foundation needed for them to be ready to set goals such as saving for a car, or for college, or (it’s baaack) saving for a down-payment on a house. That’s a lot of delayed gratification! But it’s so worth it. You’re teaching your child life skills so necessary in today’s society!

And achieving a financial goal that they set out to do gives kids such a sense of personal satisfaction. It’s a joy to watch as a parent. Let’s not deny our kids (and us!) this opportunity.

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Selling on Ebay, A Teenager’s Message

I asked my son, Ryan, to write about his experiences earning some additional money by selling things on ebay. Here is what he wrote, unedited by his mother!

~

Ebay can be a great tool to making money, anyone can do it, too. Kids, adults, it doesn’t matter! I’m Ryan, 15 years old, and I have used ebay since I was 12 to make money, mainly because I was too young to get a job.

Ebay is extremely easy to use and can be used to make yourself a small fortune. For example, I have bought and sold items that I’ve gotten from my friends and garage sales and sold them for much more than what I paid for. I recently bought an Ipod Touch for $100 from one of my friends, and sold it on ebay for $150. That’s a 50% gain! I have also sold items I’ve purchased from garage sales for almost 4 times what I paid for them. In all, I have probably MADE about $300 from ebay, and plan to make much more in the future.

It’s really quite simple to make an ebay account and get started on the road to success. Just click “register” on the ebay homepage and punch in all the info. That’s required. Then, you’re ready to sell! To sell your first item, on the homepage, go to “sell”, “sell an item”, and then find, and describe your item in a way to try to sell it, list features, accessories, etc. I strongly recommend setting a reserve price, the amount of money you’re least willing to sell the item for. To do this, you must be in the advanced settings of the description process. It’s considered an upgrade so you will have to pay a little to do this, but it’s not much.

Also, I highly recommend having a “buy it now” price, a price that you’re willing to sell it instantly, without the auction process. It is always good to have both.

After you’re done, you’re ready to list your item and make some money!

When you earn money from ebay, it is always great to save your money, you do not have to just spend it. I have already invested in mutual funds and the stock market, plus I have a savings account. Save away!

BTW, if you purchase something from someone on ebay, it is always good to leave feedback, good or bad. People rely on having positive feedback, so make sure you leave them feedback about what you thought about buying from them.

Teaching Money Values

We impart our values to our kids through our words and our actions. Mostly our actions. Take a moment to reflect on the things you value. Integrity, compassion, honesty, persistence, courage, patience… Now think about an action that can be associated with each one. For example, returning the unpaid can of tuna you discovered in the shopping cart ~ honesty. Or volunteering to speak at the board meeting even though the thought of speaking in front of people makes you mildly ill ~ courage. ūüôā

Now think about the kind of values you want your kids to live by when they grow up. Since kids do most of their learning through observation (they’re quite good at it!), it’s important to think about the messages your behavior is sending. Are you living the values that you want to help define your kids as adults?

The Money Connection: Our values are also imparted to our kids through the way we handle our money. We teach generosity when we share with those less fortunate than us. We teach responsibility and delayed gratification when we put a little of our money aside for the future. And when we splurge on a fancy dinner out we teach that it’s good to enjoy, as well.

Conversely, shopping impulsively teaches kids that the value of a dollar is not important. Not to mention the messages sent about lack of self-discipline. And holding too tightly onto money teaches kids that experiencing life is not important.

So take time every now and then to reflect on the choices you make on a daily basis. Because how you live life is how you live your values.

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.

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.