To All Free Range Parents – Teach Kids Financial Literacy or They Won’t Leave the Ranch
Here is a scary thought: according to a survey released by T. Rowe Price earlier this year, almost a quarter of parents expect they will financially support their children after they are married. In the midst of raising Free Range Kids, one key principle that parents may miss is teaching kids how to be financially independent. This doesn’t have to be as hard as you think. If parents simply lead by example while their children are young, they can better teach them the concepts and terms that will lead them to financial independence at the right age.
With today’s technology in the form of credit cards, shopping apps, and online bill paying, kids might not fully understand where money comes from and how it should be managed. Take advantage of everyday teachable moments, like shopping for new school clothes, to explain how money is earned, spent, saved for things you’ll need later, and the prioritizing you did to decide how much money is used for what. When ordering gifts online, explain how the payment process works to help them connect virtual purchases with real money your family earned. If you notice the cost of a movie ticket went up since the last time you were there, mention it as an example of inflation and help them understand that prices generally rise over time. Taking a few moments to explain financial concepts in everyday situations can help kids develop a greater understanding of smart money management.
Allowance is another opportunity to let kids flex their independence muscle. When parents of kids ages 8-14 were surveyed in T. Rowe Price’s 2013 Parents, Kids and Money survey, 84% said they have some say in how their children spend their allowance. By sharing financial concepts little by little as kids grow, you can build their financial literacy so that when they reach the age of having their own allowance, or earning their own money through babysitting and summer jobs, they can make smarter choices. Here is one way to tackle it:
- At age five, kids can begin to understand setting goals, visiting the bank, writing checks, and what it means to make trade-offs.
- At age 10, the conversation can move to earning interest, loans, and paying taxes.
- And at age 15, more complex concepts can be introduced, such as asset allocation, investing, and diversification.
Throughout the years, demonstrate the value of money through your own actions and make sure kids know their options when it comes to their own money: spend it today or save it for something tomorrow.
Financial literacy is an important part of raising independent kids. By taking the time to bring finances into everyday conversation, parents can be less involved as the children grow. To help parents and kids explore these and other money concepts, T. Rowe Price launched MoneyConfidentKids.com, an online hub providing free games for kids and tips for parents focused on goal setting, spending versus saving, inflation, asset allocation, and diversification. Helping kids look past the piggy bank and begin thinking about money at an early age will prepare them for a financially successful future. – S.R.
Lenore here again: So I went to the site and I found some helpful advice, especially this: When kids are simply told to “save money,” it can come across as an abstract idea. Helping your kids set specific goals not only provides real-life incentives, but also gives them the tools they need to make smarter spending decisions. The site also talks about trying to teach your kids the difference between ‘want” and “need.” It’s a lesson I forget too often myself. – L.