In a perfect world, parents and educators (not to mention society) work hard to make sure that children are financially literate and consider money skills just as important as reading, writing and arithmetic. Our world sure doesn’t work like that, and you need to help your young kids learn basic financial skills the old-fashioned way: Teach by doing.
Here are four of the most basic practical money skills for your children:
1. Making change. Several years ago, my lunch tab at a restaurant came to $12.65. I handed the cashier a $20 bill and then realized that I also probably had a couple of quarters, a dime and a nickel.
She had already entered the tendered amount in her register when I handed her the change. She looked from the twenty to the coins and then handed me back my 65 cents as she started putting together my $7.35 in change. “I just can’t do the math,” she said.
Calculators and cash registers doing the math for our kids, along with our society becoming more cashless, might create a generation who can’t make change. Inability to make change represents innumeracy, math’s equivalent of illiteracy. Individuals who cannot subtract 12 from 20 in their heads are vulnerable to scams as well as to their own mathematical mistakes (often inflicted on the rest of us).
Comfort when adding and subtracting money is the first skill for financial literacy.
Plenty of children’s games and toys help teach how to make change. You can practice with these to introduce denominations of money as well as ways to double-check mental math.
2. Balancing a checkbook. I once worked with a woman who did not keep a check register. Every day (long before online account records), she called her bank to check her balance. If told she had money in her account, she’d feel free to spend it even though she knew she had checks and other charges not yet cleared.
Not staying on top of your checking account is an excellent way to overdraw. It’s impossible to track and plan spending, much less balance your checkbook, if you never write down your credits and expenses.
Also, bank errors happen. If you never balance your checkbook, you will never catch your bank’s mistakes.
When your children learn multi-digit addition and subtraction, ask them to help you record your deposits and purchases. As your kids get older, they can help you balance your checkbook and look at your bank statements.
3. Paying bills. The problem with this skill is that you probably never learned it yourself until you are out on your own.
Bill-paying is mostly organization: You track the expenses as they come in, know exactly when you must pay to avoid late fees, and keep records of what you paid. Even a money-savvy kid might initially struggle with that level of organization.
As with balancing your checkbook, ask your children to help. Show children where you file paper bills until you pay, and include your kids when putting bill reminders on the calendar.
The biggest aspect of bills, of course, is having enough money to make the payment. Ask your kids to help you figure how much money remains in your account after the bills go out – also an excellent opportunity to discuss differences between needs and wants.
4. Creating a budget. This critical skill differs a little from the others on this list. Budgeting requires tracking your expenditures, setting goals, planning your finances and disciplining yourself – in no way a simple process, and even veteran budgeters may need to retool a strategy over and over again.
Budgeting is a very complex skill, partially because no two household budgets look exactly the same. The trick involves learning how to adapt to changing finances. If you show your children how you track expenses, plan for future outlays, keep needs clear from wants and roll with unexpected financial punches, they’ll develop a sense of what they’ll need to do in their own homes one day.
In addition, let your kids practice small-scale budgeting with allowance money. Nothing drives home a lesson quite like dealing with your own cash.
Managing money is as important a life skill as table manners or reading. No matter your own comfort with finances, best they learn these skills from you.
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Jeff Rose, CFP, is the founder of Alliance Wealth Management in Carbondale, Ill., and also is the founder of the website Good Financial Cents and Life Insurance by Jeff.
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