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Children across the country are returning to the classroom for the new academic year, where they will be taught the reading, writing and arithmetic skills needed to progress through life. While those are certainly fundamental to a child’s intellectual development, in today’s world, it’s equally important to introduce young minds to basic concepts surrounding earning, saving, and making money grow through investing.
Many of us at some point or another, have reached a pivotal realization about money and finances that made us say, “I wish I knew that earlier!” Maybe it was discovering how compound interest works, understanding the true cost of credit card debt, or realizing how much easier saving becomes when you start young. Whatever the lesson, it usually arrives later than we’d like.
It’s important that we teach the younger generation the things we wish we’d known sooner so that they don’t have to struggle in the same way we did or repeat our same mistakes. With that in mind, here are a few ways to introduce saving, budgeting, and investing to students this new school year.
A major part of back-to-school life involves managing lunch or snack money, so let’s start there. Say you give your students a budget of $10 a day for lunch. Challenge them not to spend it all. For example, if a lunch meal costs $8 and a sweet beverage costs $2, challenge them to stick to water for a week and save $2. At the end of the week, they can take the money saved and set it aside for a special purchase like a toy, or a game or an outing with friends. This small exercise builds discipline while teaching students that saving doesn’t require earning more money, just spending less of what you already have.
Many older students have also just completed summer jobs or may work weekends. This is another great opportunity to teach money management, and the same can be done for young students who may get an allowance. Instead of letting them keep one lump sum with no strings attached, teach them the importance of dividing the money they earn into three dedicated sections: spending money, saving money, and giving money. It should follow the common ratio of spend 50 percent, save 30 percent, and give 20 percent. This teaches that not all money should be used to satisfy immediate wants, while also introducing the idea of generosity early.
Once children grasp saving, they’re ready for a gentle introduction to investing. You don’t need to explain stocks and bonds in detail, but you can break the concepts down in simple terms. Tell them that when you buy a small piece of a business, or “a share,” you now own a tiny part of that company. If the company does well and more people want to buy its products or services, the value of that share can grow.
The easiest way to get their feet wet in the world of investing is through a custodial brokerage account, which would allow a parent to open an investment account in their child’s name. Many of these types of accounts are invested in mutual funds, which offer a mix of different types of investment products including stocks and bonds. Starting this journey as a family can be an exciting way to watch even a small amount of money grow over months and years, turning an abstract concept into a real experience.
Beyond the above-mentioned strategies, the most important shift a parent can make is treating money as a normal topic of conversation rather than something to whisper about or avoid. Involve children in age-appropriate family financial decisions, such as comparing prices while grocery shopping, or discussing why you need to conserve energy by not running the air conditioning all day so that the electricity bill isn’t so high. These every day moments can teach more than any single lesson plan could.
Financial literacy, much like reading and arithmetic, is a skill that compounds over time. The earlier children start practicing it, the more confident and capable they’ll be as adults navigating paychecks, credit cards, mortgages, and retirement accounts.
