As the holiday approaches, we know that holidays can bring on a lot of stress around finances. We believe that starting early is the best way to set up for success in investing, but most importantly laying the foundation of education in personal finance.
Teaching kids to be great stewards of money is not a simple task, but we are here to share a few ideas and stories on showing your kids the value of understanding financial literacy.
Paying yourself first – Instead of giving them a straight allowance, give them 80% of it and save the rest for them. It is important that they also see that account grow as they continue to save and within 5 terms they will have saved more than they get to spend each and every week for their allowance. If they are then able to invest that money, they can earn more interest and appreciation.
Value of Compound Interest – Albert Einstein called compound interest the 8th wonder of the world. I’m still waiting for the snow to come so we can make our snowmen but, compound interest is like rolling a snowball around on the ground. It may start small, but starts to collect more snow as you roll it around and after a while its too big to even move! If you invest for the long run it can be like building a giant snowball of money for your future!
Learning the value of working for a dollar is one of the fundamental lessons to teach as well. When you work, you earn money, when you play you spend it. We did this lesson in the Fall. For every bag of leaves my son filled up I gave him a dollar, and when he wanted to play he wouldn’t earn any money. We taught him the lesson that when you work, you earn money. If you want to do something fun, that’s ok, but you gotta pay to play! He made $5 that day.
Investing: Its December in Minnesota, so let’s sell some Hot Cocoa and teach the lesson. You can go to the store and buy two gallon of milk ($3.99×2) , a container of cocoa (41 servings for $7.99) and some cups($1.99). We have invested $18.96 now and have the opportunity to create value. We can sell 32, 8 ounce servings of Hot Cocoa for $2 dollars each because inflation is out of control now of course. We can make $64 by investing $19 and investing time and effort in. That’s a 236% rate of return!
If you are looking for a tangible gift to give someone to teach them more about personal finance at a younger age, there is a book written by a friend of mine called “This Little Piggy” By Jac Arbour and tells a story about the little piggy and Philip Anthropist and does a great job teaching the lessons of financial wellness for the youngest generation.
Have a wonderful Holiday Season!
