This week is the start of 2018, and sometime within the next 365 days, some very trusted companies will put out some surveys and reports which will demonstrate how much kids (and some adults) don’t understand about the one thing everyone uses every day – MONEY.
Back in the day when I went to school (during the 70’s), I remember spending at least half a year learning about finance and world economics. There was even time spent studying the stock market by making fake investments and following their trends. Today, the majority of high school graduates never take a single class regarding finance or economics. That’s right, not a single class.
Now I could make this piece about the lack of education on the single most important subject our kids should be learning, but it wouldn’t change what we are teaching them. That change won’t happen until funding is tied to the results. Instead, I want to focus on what parents should be doing to fill the big area of nothingness in our kids’ brains when it comes to earning, saving, sharing, spending and investing money.
So here are the basics your kids need to understand before taking on the real world. They will still make mistakes or bad choices, but heck, no one is perfect. You can teach someone to ride a bike, but they still might crash, right? I promise if you drive home these following points, your child will have a fighting chance of not being back living with you at the age of 30.
Modern Money … Yes, dollars and cents are still used, but not as much as you think. It’s estimated that less than 10% of the currency in the world is actually paper or coins. This means your child needs to know how to manage invisible money, including paying bills and ensuring accounts don’t hit zero.
Saving Money … Seems simple but 39% of Americans admit to having zero dollars in a savings account. 57% say they have less than $1,000 in a savings account. Teaching kids how to make money by taking a portion of any money they get (birthday, holiday, babysitting, mowing grass, etc.) and putting it in a savings account. As a rule, 50% should go to savings. (40% to spend and 10% to share.)
Share Money … Contributing to non-profits not only makes you feel good, but helps others in need. It can also provide a tax benefit when your child begins filing. Teach them that 10% of what they make should be set aside to “share” with others.
Investing Money … If your child ever wants to retire, he/she will need to invest money somewhere along the way. Lucky for them, there are plenty of resources available to teach them how including some fantasy investing games which would give them the chance to invest pretend money. Practice makes perfect … or at least better educated.
Compound Interest … Always take advantage of compound interest. Compound interest is when a bank pays interest on both the principal (the original amount of money) and the interest an account has already earned. As an example, if you put $1,000 in the bank with compound interest of 10%, in 20 years the $1,000 would be more than $7,000. Without compound interest, it would be $3,000.
Credit Cards … This is not free money! Have one card for emergencies or travel, but make sure the annual percentage rate is low and paid off each month. Your kids will be flooded with credit card offers as soon as they are old enough (and really approached when they hit college age), so teach them to say no, even if they are promised gifts for signing up.
Student Loans … It seems like a great idea at the time, and everyone has a plan to pay them back, but currently, the U.S. student loan debt is $1.45 trillion (average of $37,000 per student), and nearly 7 million loans are in default. Have your student follow this simple rule – don’t borrow more than they would earn in their first year out of school. In other words, if your child is going to make $24,000 as a first-year teacher, don’t take $50,000 in loans.
Yes, this is just the tip of the iceberg. However, this is exactly the reason why our children should be learning this in school. My one article won’t solve the problem, but maybe someday our schools will decide that preparing kids for real life is better than just passing them along in subjects they will never use again. BusyKid wants to help your kids learn financial responsibility with an easy-to-use app for teaching their kids how to make money.