Growing up, the core financial values instilled into me were Save, Gambling is Addictive, Buy a house, and Be Conservative. This was fairly normal in the 80s, a solid start, and I am grateful for what my parents did. But it did leave me with various issues I had to navigate as an adult. The stock market felt like gambling, I had no concepts of good debt. Credit cards were especially easy to abuse and got me in a couple of holes in my mid-twenties in particular. I left all retirement planning to the whims of whatever my employer’s 401k plan was.
I wanted my kids to have a much stronger financial literacy by the time they left the house than I did.
I started with this book: The Opposite of Spoiled by Ron Leiber. The book itself is well-written and primarily talks about the Three Jars method: Spend/Save/Give.
This was a great place fo me to start as the newly appointed Financial Educator.
The core lesson for parents is that you can start money talk really early. Like not long after they pick up the concept of money itself. Even with pre-schoolers, if they get money in a birthday card? Always split it into three chunks (allocation doesn’t matter at this age) and always have them physically put it in the jars. “Remember, each jar needs to be fed!”
The lessons the child (hopefully) picks up are the (1) habit of saving, and the (2) understanding that while you may get a crisp bill in that birthday card, you use money in different ways. As they age this naturally leads into wants/needs and (3) only spend money in the spending jar, which translates to discretionary dollars are your play money.
By the time they are in early elementary this usually evolves talks about how much of each holiday card or other windfall goes into each jar? At one point we talked about getting a Switch and how much savings it would take to afford one, and how long it would take. Having these discussions helps develop: (4) income allocation is a thing you should be thinking about, (5) saving and goal setting (6) adjusting your allocation can adjust the goal timelines , and (7) early thoughts on philanthropy, relative wealth and even empathy for others.
Around Kindergarten or so, I wanted to accelerate the lessons a bit. Leiber’s book talked about the differing opinions on allowance and tying them to chores or other responsibilities. I ended up not tying chores or school performance to allowance. Instead, i wanted to separate financial literacy from chores (work, being part of a family, responsibilities, etc) or school work (practice, study habits, love of learning, etc).
What I ended up doing was not giving him an allowance and instead saying I will give you weekly 1% of whatever is in your savings jar. The goal here was to teach (8) early concepts of assets, money that makes money and (9) Liabilities are anything that don’t make you money. I never used the term liabilities tho, it’s not really age-appropriate. Non-assets seemed to work. By the second grade, most kids are exposed to percents and then you can start demonstrating (10) the magic of compound interest and how small improvements add up over time.
It worked really well. A few hundred ballooned to nearly a thousand by the 4th grade. By 7th grade it was two thousand. The rate is clearly a little ridiculous, and while it seems expensive, I justified it by thinking that the core lessons would be more valuable than whatever I spent. I’m being honest, I’m fairly certain it’s less than I got as a child in the 80s adjusted for inflation. I’m tying the rate to their age and by middle school it’s more like 1-2% a month.
I don’t use a fancy app or anything for this. It’s all cash-based, although I’m re-thinking that and likely by high school, I’ll probably have them get a savings account somewhere.
Going forward, there are some great stories I’ve heard of how parents can impart increasingly sophisticated concepts.
This story of a dad who taught his kid buying in bulk then selling for profit, inventory management, supply and demand, operating costs, and capital expenditure, margin and more by installing a soda vending machine was always a big inspiration to me. My cousin had her elementary school child brainstorm some niche themed fidget popper toys, helped find an overseas supplier and launch a simple Amazon storefront.
My personal goal as my son navigates middle and high school is to further explore how he can make and manage money. In particular, concepts I’m looking to introduce include good use of debt, risk, cash flow mangement, capex/opex, taxes, and the very large topic of how financial incentives affect people’s behavior. Other related things are gratitude, creative problem solving and somehow figuring out how to impart the neurological dangers of gambling and addiction.
One of his biggest problems now it that he seems to have a cavalier attitude about the value of money due to having a disproportionately large extended family which results in lots of birthday and holiday cards, not having a ton of wants besides the occasional book or game and (ironically) becoming good at saving in general. He rarely needs to prioritize his spending.
At this point I truly believe that there are not many core financial concepts that are beyond the reach of an average middle schooler. The won’t have the experience, and usually don’t have the discipline to capitalize on them, but nothing inherently prevents parents and teachers from laying the foundation groundwork of financial literacy.
Lessons for Parents:
Lessons for Kids: