Arm your Children with Financial Knowledge
There’s a saying that goes, “It’s not how much you make, it’s how much you keep.” My kids are pretty creative when it comes to making money – they have the entrepreneurial American spirit. However, I would like them to learn how to keep their money – or better yet – how to make the money they make grow.
In today’s world, there’s not a whole lot of teaching about how to keep money. We are surrounded by advertisements enticing us to buy the latest and greatest gizmos. Kids are often the most targeted. Think about it: Companies know that teens have jobs and they don’t yet have the financial responsibilities of an adult. They have money to spend- and if you’ve spent any time at a shopping mall, you see the results of that advertising: teens with armloads of shopping bags. Lured. Baited. Caught. Trapped.
So much stuff to buy
The “keep up with the Jones’s” attitude is usually attributed to adults, but think of what children face each day. Your son goes to baseball practice and Gerald Gymsocks shows up with a new professional series mitt. The next day, half the team has a new mitt and a few of the kids even have expensive new cleats. Your son misses a catch and claims that if he only had “that new mitt”, or “if he wasn’t wearing those crummy old cleats” he wouldn’t have missed the ball. He might even get teased – and it doesn’t end there.
There is so much stuff that kids want to buy: cell phones, iPods, gaming systems, expensive name brand clothing, and as they get older, cars. We need to teach our children the importance of being satisfied with what they have so they can save for the future. If we don’t, they will get caught up in the “keep up with the Jones’s – kid version” and will want to spend every cent they get. If our children are armed with financial knowledge, they will be better prepared to withstand peer pressure – and might even start to feel sorry for their friends who are caught up in spending all their money on “stuff.”
The power of compound interest
Teach your children about the power of compound interest to help them understand the importance of saving early. The earlier children learn how to use this powerful tool, the more it can work in their favor. For instance, if thirteen-year-old Sally Savesalot puts $5,000 into a savings plan that earns her 8% interest, in twenty-years, that $5,000 will have grown to $23,305 – without putting in another penny! If the account stays at 8%, by the time Sally is sixty-five, that $5,000 will be worth $234, 508!
On the other hand, Patty Procrastinator doesn’t contribute to a savings account until she is twenty-six-years-old. Patty earns $5,000 for winning a Spam-eating contest and puts the money into an account at 8%, and leaves it there until she is sixty-five-years-old. When she is ready to withdraw the money, it has grown to $100,576 – which is a lot of money. However, Sally had earned more than double that amount with the same initial investment! If children can learn and understand the advantages of saving early – they can have the power of compound interest on their side.
Children also need to understand the other side of compound interest. I frequently make offhand comments to my kids when I see advertisements for “buy now, pay later.” I always have to add, “Yes, you can have it now, but it will take you forever to pay it off, and you’ll end up paying at least double or triple the amount.” My kids have heard me say it plenty – and I don’t think they will ever want to buy now, pay later.
Financial knowledge early equals more financial security in the future
Sure, our kids will still want to buy those cool gizmos and gadgets every once in awhile – but they will also know that gizmos and gadgets break, go out of style, or wear out. If our children are armed with financial knowledge, they will be less tempted to buy stuff. They will be motivated to invest their money in order to secure a better financial future.
Related posts:
- Teach your Children about Finances Part – II
- 5 Ways to Teach Little Tykes About Finances
- 5 Financial Myths Debunked
- Financial Maxims: In Your 20s
- Group Writing Project: My Financial History
Another excellent post. I’m trying to teach my kids to save their money, but it would be a lot easier in China – where the average family saves 50% of their income. Our culture is hard to teach kids the truth about money, because all day long they are taught by friends and markets ads that money is for one thing – spending.
The coming recession will at least be good for one thing, helping me teach my kids about money. Their will be many examples of families that run out of money, which will teach my kids what not to do – and will back up what I have been saying.
Good comment. It would be wonderful to have a culture in the US where saving 50% of income is the norm. Our kids will definitely need to be strong in order to withstand all the enticements to spend their money. It will be interesting to see what happens with the economy in the near future, and what our children will learn from it.