With the government spending money it doesn’t have, with credit card companies encouraging consumers to buy now and pay later, and with most Americans living paycheck to paycheck, it’s no wonder our children are failing financial literacy tests. Look at who their teachers are!
Financial institutions see that schools, parents and society are not doing an adequate job teaching our children about money. Banks, credit unions and non-profits have stepped up in teaching our children financial literacy. Why do they care? Primarily because they want children as their future customers, so they are building brand loyalty. But they also know that since children are their future consumers, they would like them to realize the importance of managing money.
Most parents do not talk to their kids about money management. Our children are learning from the kid down the street, from advertisers fighting for their dollars and from credit card companies with free Frisbees and t-shirts. If parents do not take charge of teaching their kids about money, statistics show kids will follow the path of living paycheck to paycheck, stressed out and debt ridden. Sound familiar?
“Our children are following traditional habits and playing financial chicken, careening down the road of economic disaster,” says Lori Mackey, author of Money Mama & The Three Little Pigs. “With the average college student having two to four credit cards and thinking sales tax comes out of their paycheck, we have a serious problem on our hands.” “Positive money management is so simple, and when you start early, you can secure a child’s financial future,” says Mackey. If we had been taught money management as a child, we would not be in such need of help now. Financial literacy principles are very simple, says Mackey, pay yourself first, give back, and live beneath your means. Talk to your children about money in a non-threatening way. Open the conversation and ask them what they think of money, what it does, its uses and what it is good for.
Explain to your children that financial fitness is as important as physical fitness. Mackey uses the 10/10/10/70 concept. Children should give away 10 percent of their earnings, save 10 percent, invest 10 percent, and spend the remaining 70 percent wisely. “When they understand investing and saving, they can have control over their future. When they experience living beneath their means, they lean how to make choices in life and become responsible.” Pay your children an allowance or give them extra chores so they can practice the 10/10/10/70 concept and understand how you receive payment for services rendered. Allow them to earn money so they can value what they have earned. Children (as young as 3) can learn these concepts through interaction with their parents. In fact, early education can be key to financial success. Developmental research proves kids learn best through experience. Mackey’s method starts with five dimes, two quarters, and a special piggy bank.
Every time your child receives a dollar, make it easy; give it to them in the form of five dimes and two quarters. You will also need four containers, jars, cans or boxes (three small and one large). Label the small containers “giving,” “investing” and “savings.” Label the big container “spending wisely.” Here are some of Mackey’s tips which will help you to guide your child through the four principles.
Sit with your child and ask what she cares about. It may be animals, people, or nature; let her pick the one she absolutely loves. Then explain that she will give one of her dimes to the charity she has chosen. The “giving” container has the magical power to help people, animals and nature that are in need. “When you teach a child to give, they learn compassion,” Mackey says.
Tell her that in order for her to have financial freedom in her future, she will put another dime into the “investing” container. This money will be all hers; and it will grow and grow. The investing container has the magical power of growth; this money will grow every year as she does. Older children will understand that the money must actually be invested in order to grow.
The third dime is for the “savings” container. This is for her future. When she grows up, this will be there for her when she decides to stop working or in an emergency. This money should never be spent now. The magic of her savings container is a bright and shiny future. This money will also multiply and grow, just like the investing money. A savings account can create positive habits of saving long-term and watching their money grow and compound.
4) Spend Wisely
Finally, she can take the remaining two dimes and two quarters and put them in her “spending wisely” container. The magic of the spending wisely container is the gift of choice; explain to her we all have choices of what we spend our money on. Also, remind her to always take a minute and ask herself before spending, “Is this something I really want or need?” TIP: Always have them spend their own money on the items they want and need. There’s nothing better than when a child says, “But I don’t want to waste my money!” Children will not spend their money nearly as fast as they will spend your money. By following these steps, your child will learn how to pay herself first, give back to her community, and learn to live from 70 percent of her income. This is the simple formula of creating true wealth and prosperity.
Courtesy of Feature Source.