How to teach your kids about money: Part 1
Teach your children well
Start early
According to investor extraordinaire Warren Buffet, parents' biggest mistake is waiting until their kids are teenagers before teaching them about money. Some experts say that children's money habits are formed by the time they are 7, so it's best to start early.
Make it fun
It's no secret that kids are little learning machines, soaking up lessons from the world around them. And one of the most effective ways they learn is by playing games. There are many board games out there to help teach your kids about money. Here's a great list from the Freedom Sprout website. They provide a list of 53 games covering everything from basic financial skills to entrepreneurship to investing in the stock market. Maybe at seven, they're not ready for the stock market, but you never know.
Help your kids run a lemonade stand.
Teaching your kids to run a lemonade stand is a classic childhood project that families have been doing for generations. It's a fun activity for kids and parents. But there's much more to it than making a batch of lemonade for your kids and having them bring in a few bucks to spend on candy at the local store. Woo Jr. offers some great tips and materials to help get that stand up and running as an entrepreneurial experience and a learning adventure. There's a huge opportunity here to learn many great lessons. Sure, you can and should keep it simple at first. But as your kids run lemonade stands summer after summer, you can dive pretty deep into financial and business lessons. Here's a quick list of things your kids can learn and questions to get their problem-solving skills and business thinking tuned up.
Does the 'business plan' work?
- How much does it cost to produce a single cup of lemonade?
- What do they need to charge to break even?
- What does a lemonade cost at an actual store?
- What do they think a customer would be happy to pay for a cup?
- Why should a customer buy their lemonade?
- How can they make the offer better? Fancy drink umbrellas? Hand-decorated cups? Bendy straws? Ice cubes made with lemonade?
- Can they afford to donate a portion to a charity?
How can they grow their business? How can you get more business/customers?
- Can they try a different location? Maybe they can create a partnership with their friend that lives near the local soccer fields and offer lemonade to thirsty families on their way to and from the games?
- How can they make a better Product/Offer? How can they use feedback from their customers to make their products better?
- Can they offer other products during different seasons? Maybe a hot-chocolate stand near the best local sledding hill? Or warm cider in the fall?
- How can they increase the average transaction size? "Would you like a homemade brownie with that?" Can they offer two for one deals or a free snack with the purchase of three cups?
As you can see, the possibilities are endless. There are potential lessons about business, math, entrepreneurship, branding, charitable giving, dealing with customers, analysis, etc. And exploring these ideas early, even on a basic level, could profoundly impact their careers and lives down the road.
*Be sure to follow your local laws. Many states and jurisdictions require a permit to operate a lemonade stand. Check with your local authorities to learn how to operate above-board. Oh, look...another opportunity for the kiddos to learn about life and the real world!
Practice with real money
Teach your kids about how money works as they are learning basic math. Allow them to play, feel, and get familiar with real coins and bills. They will likely cover these basics in grade school, but the earlier they get a grasp of it, the sooner they can start honing their money skills.
They can play store, ice cream stand, or restaurant, using real or realistic money as they learn. Have them practice making various transactions, role-play buying and shopping situations, choosing items to purchase, etc.
Take them shopping with you and explain out loud what you're thinking:
- "Look at these ingredients. The generic version is essentially the same product as the brand name one but costs much less."
- "Blueberries are on sale this week, so let's buy extra and freeze them for smoothies, muffins, or ice cream toppings."
And so on. After you've talked your kids through your process a few times, begin to ask them questions to get them thinking and making decisions.
- "Do we really need this? Will it make us happy? Is it worth it? If we buy this, we can't buy that. Do you want this or that?"
Once you've gotten your kids are a tad older, and they've been involved in the process for a while, give them a chance to practice with real money. Give them $X to purchase items that are within your parameters of need. "Would you like to help Dad figure out what fruits to buy for lunches this week? Here's $15 to work with. Remember, we need to pack lunches for you and your sister for five days this week." Let them figure out the best choice. Let them make a few mistakes and learn as they go by doing. Believe it or not, the US Treasury has resources and educational games, puzzles, and more available at https://www.treasurydirect.gov/kids/kids.htm.
Learn to earn
Give your kids commissions, not allowances. Giving your kids a no-strings-attached allowance for spending money might sound like a good idea. But it's a missed opportunity for your kids to learn how to earn and manage their money.
When it comes to career development, many people tend to focus on degrees, connections, and the technical skills and knowledge of a particular field. However, there are soft skills that many employers value as much or even more than technical skills and experience. And teaching your kids about these soft skills is one of the best things you can do to empower your child in their future career.
Employers are looking for employees who show up when they're supposed to, follow directions, have a positive attitude, take pride in their work, and look for other ways to contribute. You can begin to teach and instill these lessons at home. Have your kids earn their allowances by contributing to household chores and duties. Set clear expectations for the job at hand. What tasks will be completed, to what standards, by what date, in return for what compensation? Spell out what will happen if the tasks are not completed on time or up to par.
At some point, your kids may begin to outgrow the opportunities to earn money at home. Help them find opportunities to serve and to earn - does your neighbor need his lawn raked, could they babysit for their aunt and uncle, could they start a lemonade stand. Or, if they're old enough, coach them through the process of finding their first job. There are plenty of life skills to learn here, like where to look for a job, filling out an application correctly, dressing for success, interview skills, and so on. Having been on the hiring side of the interview table many times, I can tell you that there is ample opportunity for many people to improve their job skills.
Why not teach your kids these skills early on?
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