Summer Break Money Lessons

As a financial advisor, I’ve spent my career preparing clients for the unexpected. COVID-19 reminded everyone how important it is to financially set goals, plan for the future and have resources available for whatever life might throw your way. As parents, we want to teach our children valuable lessons to guide them, so the choices they make in life will make their journey easier. Though personal finance is a critical function in today’s society, it is one of the most neglected skills in our formal education system, so kids of all ages can benefit from fun and engaging finance lessons. For summer break, I developed lessons that are so easy to incorporate into everyday life your kids won’t even know they’re being “schooled.”

Delayed Gratification.

In May of this year, Slickdeals reported that the results from a survey of 2K people showed that the COVID-19 pandemic caused individuals to shop more impulsively than before the outbreak with cleaning supplies topping the list. Slickdeals also reports that before the pandemic, the average American spent over $150.00 per month on impulse purchases, this time, on groceries.

According to the Consumer Financial Protection Bureau (CFPB), kids can learn to delay instant gratification impulses starting at age three. Rewarding kids when they have to wait their turn during games like Red Light – Green Light or in sports is an easy way to infuse this valuable life lesson.

Planning Ahead

The CFPB also states that games like Space Journey, where kids pretend they are going on a space adventure for several weeks and instructed that they are only permitted to take five items with them, must carefully decide what those items will be. Games like this can help develop kids’ critical thinking and decision-making skills. Having your children help you develop a grocery list and sticking to that list when shopping can also cultivate this skill.

Financial Habits

Fidelity Investments reports that 401(k) millionaires hit an all-time high at the end of 2019. Regular savings into a 401k, IRA or other retirement account is how many Americans have become what is termed “401(k) millionaires” – everyday people who earned millionaire status by making it a habit to save consistently.

Since most habits start early, having teenagers save a portion of the money young adults earn from chores or babysitting is a fantastic opportunity for building a practice that becomes so ingrained, they become savers subconsciously. This is also a great time to introduce charitable giving and “Paying it forward”.

Compound Interest and Financial Responsibility

Albert Einstein said that compound interest is the eighth wonder of the world. While simple interest only earns interest on the money invested, compound interest earns dollars on the original money invested and the interest earned. Example:

• Invest $100 a month at 6% interest, after 10 years you’ll have $15,816.95

• Invest $100 a month at 6% interest, after 35 years you’ll have $133,721.74

When teaching young adults about the exciting part of finances, you can also introduce how compound interest can work against them when using credit cards and the responsibility of paying those cards off at the end of the month.

Goal-Setting

Saving money to be used towards college can go a long way in helping your children learn the true value of a dollar. Many states have a 529 financial plan to help sock money away for college. Wisconsin’s 529 plan is called Edvest and Tomorrows Scholar. Teaching your kids these skills helps motivates them to save for a car, a house and retirement when the time is right.

Conclusion

Whether you choose to use the tips above, online resources or your own DIY money lessons, building healthy habits early on is vital to a child’s financial literacy and maturity. To get you started, here are some online teaching resources: The Consumer Financial Protection Bureau: https://www.consumerfinance.gov/about-us/blog/kids-home-money skills/?utm_source=newsletter&utm_medium=email&utm_campaign=wc&utm_term=May720, Mint:  https://www.mint.com/ultimate-resources-for-teaching-kids-about-money, Dave Ramsy: https://www.daveramsey.com/blog/how-to-teach-kids-about-money, FDIC https://www.fdic.gov/consumers/consumer/moneysmart/young.html.

When kids have a healthy financial foundation, it makes those times life gets tough so much easier to navigate.