Financial Education for Kids of All Ages

Financial Education for Kids of All Ages

Making a mistake such as taking out a mortgage without fully understanding interest rates can have huge consequences on a person’s future. Sadly, it is common to find that those who pursue advanced studies in non-financial-related sectors can be stumped when it comes to issues such as investment, loans, or credit scores. Adena Friedman, current President/CEO of Nasdaq, noted that one of the reasons she has always been comfortable in the realm of finances, is her education. As a child, she spent many days on the trading room with her father, who worked at top investment firm, T. Rowe Price. Financial literacy begins at home, as knowledge in mathematics, languages, or literature do too; parents play a much larger role in their children’s future than they may realize and encouraging learning should always be a priority.

Toddlers and the Early Years

Age is ultimately irrelevant when it comes to learning about finances, since children learn concepts at different paces and some schools may put a big focus on advanced mathematical learning at an early age. Therefore, this guide focuses on skills mastered rather than mentioning a specific ages.

Even though children aren’t aware of the precise value of money yet, they can learn simple concepts such as ‘buying’ itself. Take them to the grocery store, show them that the goods you buy must be paid for and let them know that some things are too ‘expensive’ to take home. Also point out ‘discounted’ and ‘bargain’ items. Engage in role plays involving shop keeping. Most little kids go nuts over a play cash register and play money, and buy a plethora of items such as toy fruit and other items they can ‘buy’ and ‘sell’ at home.

When Kids Know How to Add and Subtract

Now is the time when children can start learning the value of money. You can start off by playing ‘change’ games, using simple addition and subtraction involving $5, $10, $20 bills and such. Children can also start receiving an allowance, and learn about saving for a special toy they have been eyeing. Feel free to give an allowance in exchange for chores, which is a good way for children to understand the relationship between employment and earnings.

When Kids Master Percentages

Once percentages are a cinch, you can start teaching children about interest. For instance, explain that if you loan them money and they take four weeks to pay you back, the total owed will be higher than if they buy a toy outright with their savings. Still, this may be more interesting for them if they wish to use their money for other needs.

Loans Start in Early Adulthood

Understanding the nature of loans and interest is undoubtedly a crucial skill to have, bearing in mind that students can barely have entered adulthood when they may have to take out a student loan. While the burden of debt can be eased by measures such as consolidation to raise finances during study, it is important for kids to understand that the ultimate aim is to owe little, or to reduce debt as early as possible by, for instance, working while they are studying at college.

Kids and the Stock Market

Kids who really take to the subject can go a step further, using apps like Stockpile to buy fractional shares of stocks in their favorite companies. BusyKid is another cool app; it teaches kids to save, share, spend, and invest money. Once children and teens have their own bank account, they can start using apps like Acorns, which round up to the nearest dollar every time you make a purchase. This ‘spare change’ is then used to invest in one of five portfolio options ranging from conservative to aggressive.

Each parent knows their own child’s pace. Adapt your teaching on finance to your child’s interests and encourage them to be confidence when talking about expenses, interest rates and even shares. Saving is another key concept they should see as a cornerstone of financial stability in their adult lives.