Learning about money isn’t something most kids get an opportunity to do, says Larry Menna, a Raymond James financial planner in Bakersfield, Calif., who teaches basic finance to juniors in high school in his spare time.
“It’s really important because it gives them a base of knowledge to go off,” he says. “Failing to understand that you have to spend half of what you earn and save half is not a great road to go down.”
Menna knows from personal experience what he’s talking about. As a teenager and into his 20s, he wasn’t thinking all that practically. “I spent everything on drag racing when I should have been saving,” he says. “We all do stuff like that when we’re growing up.”
Dave Morgan, a Raymond James advisor in Naples, Fla., who has also taught kids how to budget, says frugal behavior comes no more naturally to children than it does many parents. “If I say, ‘Here’s $100, put $50 in your pocket and put $50 away for a rainy day,’ they’ll say, ‘Hell no!’” he says. “It’s a cultural issue and it’s going on in Washington right now. Why would kids think any different?”
However, if you stick to the rulebook, your kids will more likely turn into financially secure adults. “People in their 30s and 40s come in with $200,000 or $300,000 that they’ve saved up are people who learned good habits from an early age and stuck with them,” Menna says. “An average Joe has maybe $10,000 saved up, if that.”
Colleen Schon, a Raymond James advisor in Auburn Hills, Mich., says that around eight years of age is a good time to start — kids are starting to become more self-sufficient and can work chores they’re paid an allowance for.
“When you walk into a Target with an eight year old everything is ‘Buy me this!’ I explain that this is the price — an iPod Nano is $150, for example — and at $10 allowance per week, here’s how long it’ll take to save up,” Schon says. “It teaches the lesson that things cost money and hard work pays off.”
Schon’s system with her own kids was to set them weekly and daily chores. Her kids would earn $10 per week for completing their chores, but they’d earn nothing if they didn’t, in order to instill a work ethic.
But the lesson didn’t end there. Schon would pay her children in 10 one-dollar bills, which they then split into savings, expenses and disposable income. “Kids can grasp that,” she says. “With a budget in mind, they can choose between buying candy today, or saving up for a video game.”
Once kids start to develop budgeting skills, parents might move onto investing, which can be a really fun learning experience. “If you want to buy a stock, you can teach them how much it costs and what the company makes,” Schon says. “I’d do printouts — where are Disney’s stores? What countries is Disney in? It’s a game for kids that puts investing on their level.”