Raising Financially Literate Kids

As the father of two boys (ages 13 and 11), I want to raise financially literate kids. Ideally, this subject would be taught in schools and supplemented at home, similar to reading. Unfortunately, we don’t live in an ideal world! Most schools do not teach financial literacy, yet my kids learn about cursive and shapes instead.

The Importance of Financial Literacy

Given my kids’ ages, I often wonder how their financial education will affect their adult lives. Here are some steps my wife and I take to help them develop a solid understanding of money and wealth.

Start the Conversation

Normalize: My wife and I frequently discuss money in a kid-friendly way. This doesn't mean burdening our children with financial stresses. Instead, we talk about paying bills, the cost of items, and the importance of saving for unexpected events. I cannot stress this step enough; money is often a taboo topic in homes. Additionally, I discuss the stock and cryptocurrency markets with my kids. They frequently ask about market performance when they get home from school.

Create Understanding with Stories

Explain: When my kids were younger, I shared a fictional story about "Money Babies" to illustrate the concept of interest, especially compound interest. In the story, a dollar gives birth to coins, which then give birth to more coins. After telling this story, I encouraged them to invest $2 of their allowance weekly into their own brokerage accounts. They would sit on my lap, click the mouse, and we would discuss each step. They invested in free stock index funds, which are collections of publicly traded companies designed to track the U.S. and international stock markets.

This process is not about becoming millionaires from their allowance; it's about building good habits. During car rides, they often ask if they own businesses they see outside, like Starbucks or McDonald's. This is a straightforward way for them to grasp the idea of owning shares in many companies.

Encourage Financial Independence

Self-Manage: For their remaining allowance, it’s theirs to spend as they choose. This teaches them about saving for larger toys, the concept of delayed gratification, and understanding the cost of items. I notice their hesitance to spend “their” money, which shows they are learning. Providing them with actual cash gives them a tangible experience.

Reward Hard Work

Incentivize: Last year, a neighbor asked my boys to help with yard work. To our surprise, he began paying them. We matched their earnings to motivate them to invest even more. Thus, 100% of their earnings could be invested. This money was placed into a Custodial IRA, which is a Roth IRA for children with earned income. It allows for decades of tax-free growth and, importantly, teaches them financial knowledge!

Instill Values of Giving

Giving Back: A few years ago, my wife and I discussed our contribution to our donor-advised fund. This fund allows us to support various causes we care about. This prompted my kids to donate some of their own money to adopt two sloths. Through this experience, they learned that money can make a positive impact.

Conclusion

In summary, parenting is challenging, and there is no perfect approach that works for every child. However, the steps outlined above are helping my kids grasp the basics of wealth. Financial literacy is an essential skill that will equip them for their future.

Disclaimer: This blog post is for informational and educational purposes only and does not constitute financial, investment, tax, legal, or other professional advice. The content is not tailored to any individual's specific needs and should not be relied upon as a forecast, guarantee, or offer to buy or sell securities or adopt any investment strategy. Opinions expressed are those of the author and may not reflect current market conditions or future outcomes. Use of this information is at your own risk.