Financial literacy for the next generation is so important and something I have heard discussed since I entered the profession. Many have talked about the lack of financial education in the schools and things have gotten better but not to the point where our kids are receiving the education they need or being empowered to have a better relationship and understanding of money.
We cannot rely on schools to educate our children so we need to take this responsibility into our homes and educate our children. Those families that have a solid understanding of financial literacy can take that on themselves and those that do not, need to lean on someone or a professional that does. We have helped many of the families we serve to educate the next generation on creating and maintaining good financial habits.
The earlier you start having conversations about money the better off your children will be. Denise and I started teaching our kids about money early on. One of the tools we used to help educate them was a piggy bank, but not the traditional one you think of when you hear the word piggy bank. The bank we had for our kids had three slots, one for spending, saving, and charity. This is a similar Piggy Bank that is available with four slots now that include spending, saving, donating, and investing. This encourages children to look at the money they receive as having potentially different uses and not all there to spend.
Budgeting is also an important skill set that should be learned early on. Having children set goals for things they are looking to buy, amounts they are looking to save or invest, and how much they would like to donate. As I speak about in Chapter 3 “Budget Isn’t A Dirty Word” of my book Financial Planning Made Personal, budgeting is about setting goals, tracking your spending, and/or savings, and prioritizing what is most important.
Craig Lemoine, Director of Consumer Investment Research wrote an article titled “Where is the Money Tree? How to Teach Kids About Money, Credit Cards, Saving, Investing, Venmo and More” that covered many important financial topics we should be instilling in our kids, including budgeting.
Compound interest and investing are something that needs to be taught to all children. When discussing compound interest I always remember the quote by Albert Einstein, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”. Instilling in our young folks this simple concept can put them on the path to financial success with an understanding of how investing and saving early can have a significant positive impact. I suggest you introduce your children/grandchildren to a simple compound interest calculator to show them how it works.
Leading by example is probably the most effective and important tool we have to empower the next generation. Much of our financial education as children come from watching the adults around us. We must model good habits and show how we are utilizing the concepts we are discussing with them. We must save, spend, give to charity, and invest if we want the next generation to do the same, otherwise, it is just words. Our children should see or hear us talk about budgeting and compound interest and their benefits or they will never learn about it themselves. One of the reasons I have been selected as an Investopedia 100 is because of my burning desire to educate our youth and the next generation to be more financially literate. Involve your kids in household decisions and let them see you utilizing and implementing these concepts. This will only empower them and all of the generations that follow.
Many of the families we serve have found value in Every Penny Counts: A Money Management Worksheet for Teens. Please feel free to download your copy.
We would be happy to schedule a time to discuss how we can help you and your family understand how you can Spring clean your finances to lower your expenses. Feel free to schedule a 30 Minute Zoom Meeting for us to discuss this.
This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice. Investing involves risk, including possible loss of principal. No strategy assures success or protects against loss. To determine what may be appropriate for you, consult your financial advisor.