Give The Gift of Financial Education: planting seeds for the next generation of financially savvy individuals
The holiday season is upon us! For me, this brings fond memories of family traditions centered around spending time together, eating good food, and exchanging gifts. This year, consider giving the gift of financial education to your children (or grandchildren) that will pay dividends (pun totally intended) as they grow.
Many of our clients rely on professional advisors for assistance in more complex financial areas. However, there are some concepts that can be introduced to children that may stick; positively impacting your loved ones for the rest of their lives. Here are four practical ways to teach some fundamentals to younger generations.
1. Goal-Based Planning - If your child is on an allowance or has a little income, teach them how to save for a goal. Here is an example of a SMART goal I had as a child:
- Specific: I will save some of my allowance to buy an Xbox 360
- Measurable: It will take 10 months
- Achievable: I will save $40 per month
- Relevant: I want to have friends over to play video games
- Time-bound: I will buy it by my birthday (so we can play at the party)
Ultimately, the specific goal isn’t the most important aspect; the planning and learning deferred gratification is the real prize!
2. Two Piggy Banks - Teaching kids the value of accruing interest and introducing a core concept of investing - money can create more money when given time. The first piggy bank is always accessible for candy, books, toys, etc. The second piggy bank is only accessible periodically and "magically" earns interest (by you putting a few extra dollars in monthly). The objective is to present the choice to your kids and encourage them to weigh the benefits. You can turn this into a game by seeing how long can wait to touch their savings in the “magical piggy bank” Kids may also enjoy seeing how much they earn by keeping track of how much goes into the magic piggy bank and how much it grows from interest.
3. Monopoly Money -This is a helpful budgeting tool when your child is going off to college, taking a trip, or after they land their first job.
Research suggests that people spend less when they use cash instead of swiping a plastic card (credit and debit included) because they immediately see the money leaving their possession. Having something tangible, like Monopoly money, can be a more memorable experience than moving numbers around on a computer screen.
4. Hands-On Investing - Older children get a true hands-on experience by opening an investment account. Paper trading platforms provide a risk-free entry into investing. Those wanting to put their real money into the market may decide to use ETFs due to their low minimum investment requirements. There are plenty of account types to choose from depending on age, goals, and whether they have earned income.
We’d love to hear your own financial education ideas and hope anyone who tries these out with their own kids find them fun and impactful. Best of luck and happy holidays!
Written by Alex Richani, CFP®