How to teach children financial education?

[andreasro]

Hi !
Nikita posted an interesting message on this topic http://forum.parentweb.com/index.php?topic=6940.15:

One thing I think is an important subject to learn, but isnt taught in schools, is how to become wealthy, through property investment and suchlike. To give kids tools to run their own businesses, rather than spend their lives working for others and receiving a weekly wage. Things like setting up an ebay shop or online business.
They also dont learn about how to have a successful marriage and raise a family properly. We do these things with only what we have been shown from our own family situations. I want to utilize books out there to help my children choose wisely and to not take any sort of abuse. I shall use myself as an example of silly mistakes.
They need to know tools for use in REAL LIFE.

I graduated economy college. But no one taught us those things neither in higschool, nor in college nor you learn it further in the education system. Nikita is right. No one teaches us these things in school. In fact, most of graduates learn how to be employees, not employers. Of course, it depends on the character, family background and other. I can't blame the school for my future, but I can't ignore the fact that if someone taught me other ways in life, it would have been different. Anyway, time is not lost, we're still young.
Neither I nor my husband nor anyone in my family - except an uncle who is really struggling with his own small business - aren't independent financially. But at least for us it's a dream worth working at.

As it is a good point, my question is: How can we give our kids a financial education?
What can we teach our children so that to show them another future possible for them, even an opportunity that maybe we hadn't?

Some Italian parents, who learned about and shared ideas and their experience with Doman, Shichida and other methods (www.bambini-intelligenti.com) recommended reading Robert Kiyosaki. It was a suggested reading in the EK method, taking into account that ones beliefs regarding money and wealth influences his or her children's thinking too. ( Off topic: for more about "Biology of Belief" one can study Bruce Lipton.)
I'm reading R. Kiyosaki these days ("Retire Young, Retire Rich", Romanian edition), and I agree. It's worth digging into it, although one must be up-to-date with what he's writing these days, in the light of new (economic) events.
Kiyosaki is just one of those sources available.

I've learned these days about an index, Baltic Dry Index (BDI), I've never knew even existed. You don't hear about it in daily (financial) news. And it is the most objective index about world trade/demand. Now I want to make myself a REAL financial education.

[TmS]

My son has his own account that I started when he was born. It doesn't have a lot in it but I make sure it grows. When he is a little older (I'm thinking we'll start this Christmas) we're going to start teaching him how to shop by giving him a set amount he can spend on toys and helping him choose. I don't intend to be too strict on the price at this point but it's just to introduce the concept. We intend to add financial responsibilities one at a time so he can grasp budgeting.

Eventually he will be totally in control of his money. All lessons - music, sport, languages, whatever - toys, excursions, learning materials etc will be paid for from his account. I will be funding the account so he will be getting what I would be spending anyway but if he goes over and buys too many toys or whatever he will come short and learn consequences. I hope to have him in control of his spendings in a responsible manner by around age 8 (maybe earlier kids always surprise me) at which point I'll start introducing investments etc. Hopefully by the time he's 18 he'll know more than I did and have a solid base to start from. Shouldn't take much as I was clueless.

[andreasro]

It sounds to be a good idea, thanks for sharing!
Our kids are about the same age, I see.
Since our son was born we've been thinking of the proper way to teach him about money, spending etc. We looked into how we were taught, what our parents did or didn't in their lives, what we did or didn't etc. It's hightime we start doing something, both for him and for us, regarding this education.

[Ouroboros1]

In the 1960s, a professor at Stanford University began a modest experiment testing the willpower of four-year-old children. He placed before them a large marshmallow and then told them they could eat it right away or, if they waited for 15 minutes, they could have two marshmallows.

He then left the children alone and watched what happened behind a two-way mirror. Some of the children ate the marshmallow immediately; some could wait only a few minutes before giving in to temptation. Only 30 percent were able to wait.

It was a mildly interesting experiment, and the professor moved on to other areas of research, for, in his own words, “there are only so many things you can do with kids trying not to eat marshmallows.” But as time went on, he kept track of the children and began to notice an interesting correlation: the children who could not wait struggled later in life and had more behavioral problems, while those who waited tended to be more positive and better motivated, have higher grades and incomes, and have healthier relationships.

What started as a simple experiment with children and marshmallows became a landmark study suggesting that the ability to wait—to be patient—was a key character trait that might predict later success in life.
(Jonah Lehrer, “Don’t! The Secret of Self-Control,” New Yorker, May 18, 2009, 26–27)
I think that today people in general have a lot weaker impulse control than they had in the past, since credit and instant gratification are advertised and promoted.  I think this is key in financial health, as well as beneficial in other areas.

[andreasro]

Both of you, TmS and Ouroboros1,
are talking in fact about a kind of training, isn't it?
Training for being financially responsible, let's say, and training for being self-controled. Each training builds character with certain traits.
Rich people have character traits and views about life, money etc. that lead them to their success. Either good or bad people, either people who we admire or who disgust us, doesn't matter. They are rich. Some of them are worth learning from.

I really believe that if we give our kids a wide range of information, they have a data bank that they can use anytime, anywhere. And the broader their perspective on themselves, their lives, the world, the less are they subjective to external influences.
But one needs discernment too, beside responsibility and self-control. One can have or add information anytime, but without discernment he/she wouldn't have the ability to see what's useful, what is suitable for him/her and what's not, what would empty his/her "pockets", and what would bring gain or minimize the losses. And this also adds up to useful things in life in general, not only on financial level.

[TmS]

No not training. That's not the way I educate. I'm talking about real experiences in controlled environments. Learning what money is by using it and making bad decisions and good decisions and experiencing consequences. Like when you go to the reject shop and buy twenty dollars worth of cheap toys because you get lots but you have to replace them every week versus buying one $20 quality toy once a week that lasts. Experience is the best way to learn and if my son has had lots of experience by the time he's ready to start work then he will have the tools in place to make well judged and well informed decisions throughout his adult life.

I believe it is my job to prepare him for his time in the world when he is ready to leave us, I wish to give him the tools and knowledge and experience that will achieve this.

Sorry quite tired and am not really coherent.

[Ouroboros1]

We had a friend, and her son Max got $5 for his birthday.  We had taken Max and his older brother to the mall to hang out and basically just watch them while their mother did some errands.  We love these friends to death but they are very bad with money, frequently have "past due" and "final notice" mail laying out (I think I would be more self conscious and embarassed), lost a house, etc. 

Anyways, at the mall, Max acted like he HAD to spend this money on something.  It didn't really matter what it was, he had to buy something.  I think he adopted this attitude towards money from his parents.  We asked him if there was anything that he really wanted, and he couldn't think of anything.   We explained that he could save the money and buy something bigger later, and it was obvious that this was a foreign concept.

He ended up buying some rubber ball that had these internal led lights that would go on when it was bounced. 


I've always thought about having kids keep a little notebook and be accountable for their spending, by recording what they spend their allowance to buy.  I see how few adults keep a balanced checkbook and really know where their money is going.  It's a LOT easier to spend with a debit card--quicker and less "conscious", like it's Monopoly money or something.

[andreasro]

Sorry, TmS, I got it wrong.
Experience, indeed, is a good thing, and maybe the best teacher. And for this we need something more to make it work: the ability to accept failure as part of the experience in general. For some of us, to fail isn't an option. Some prefer "security/protection" over "taking certain risks and trying till something comes successful".

How about teaching children were the money came from?
It's good to teach them how to spend wisely, keeping track of their active and passive, and assuring a certain balance. I agree that some of us, adults, don't know how to do that.
But a child can learn about different ways to make money. I mean by showing him/her different people in different positions, occupations etc. So to see how one works to make money. And let him/her choose, later, which way he/she prefers. Some of us maybe would have made other choices in life.

In our families we've seen in general the hard way thinking that would sum up in: "finish your studies and become someone, working somewhere", or "it's not necessary to finish studies, just learn something to do and have a job". Another way was that of: "if you want to run a small business, prepare yourself for an ordeal that will never end (taxes and more taxes, expenses, deadlines etc.), because you'll have to run it on your own all your life, and there's nothing else you'll be able to do in this life as it's your and your family's only income."

It's good to learn to appreciate money. I don't know when and how exactly a child is able to do that, though.

[TmS]

I think finances are something many adults struggle with. I believe it is because of a lack of understanding of different options and a lack of experience handling. For so many of us the first time we've had to balance the books was as adults with money that we had earned and we had to get it right or the consequences were severe.

I grew up sure I didn't want to work in an office - I had options and I was aware of these options for income but had no real understanding of budgeting, different wages, what was good, what was bad, what it cost to live, how to save, different types of savings, how home loans worked, how investment works and so on and so on.

I knew only the things I had been exposed to and that wasn't much. Despite being very good at maths, finances did not come naturally.

So while my parents told me I could be anything I wanted to be - they didn't show me how. It took me a long time to form good habits and I made some disastrous mistakes along the way.  I want my son to have an understanding of these things - a practical understanding as well as a theoretical understanding so that as an adult he can make informed decisions.

I'm sure our plans will change along the way it is only a rough outline at the moment but I am sure that life will provide many opportunities for him to make these discoveries with my money instead of his....

[Kimba15]

I think finacial education is one of thwe most important things we can ever teach our children. I was never taught and had to learn the very hard way by running up a massive credit card debt and then having to pay that off. I cried so much having to pay that off because I had absolutley nothing to show for what i bought.

My husband and I discuss this all the time, how we are going to teach our children finacial responsibility. We have thought that we would like them to learn how to run their own businesses. We thought we could get some chooks (my husband and I would be the bank and loan them the money and they would have to pay it back) Of course we would be kind enough not to charge interest. . They can sell the eggs and be responsible for the care and feed of the chooks, they could also probably sell the chook poo to. We would help them kepp profit and loss statements, bugdget the money and then help them invest the profit so they learn to be responsible for themselves.

Rockefellar did the same thing with all of his 5 sons. They all learnt how to run businesses well because there dad refused to give them handouts and they had to show every week a balanced budget book profit/loss statements to their dad from their own little backyard businesses.. I guess that might be how the rockefellars have kept their wealth for so long. They teach finacial education to their children rather than give them everything on a platter.

Finacial education is a slow process and something taught over many years, but a funadmental aspect to living that is continually overlooked especially this day and age. So many of us have had to learn the hard way and I wish i was taught the basics as a child and a young adult.

[groovygirl]

In response to Ouroboros1 idea of keeping a little notebook
I recently saw a documentary on the life of the Rockefellers.
 
Rockefeller senior had all his children do just as you said - keep a notebook of all their allowances and spendings. He would periodically audit the kids. He was very strict in this regard.

Funny though - is it right to expect my kid to do something I don't have the discipline to do?

[Ouroboros1]

Just think of it as if you're teaching a language that you aren't fluent in.  I'm OK if my kids surpass my abilities and bad habits!

That's interesting that the Rockafellers did that, it just seemed like a good idea to me.   So when they ask, "Can I buy X?"  We can go back and say, "Well, what did you spend your money on...hmm candy.  Well we'll just have to save up for it."

[Ouroboros1]

The only thing I've seen on delaying gratification was when I was reading in "Nurture Shock" about the "Tools of the Mind" classes.  One role that kids can play is an injured victim that the fire department needs to come save.  They have to sit still in one place until the other kids arrive and save them. 

The later studies show that these kids were a lot better at impulse control and could pay attention much more easily.  It stressed the importance of play and how it affects social development.

[andreasro]

Here are some tools for us, parents, to help children have "financial intelligence":
http://www.richkidsmartkid.com/grownUps.html
I'm studying this site and Cashflow games. I'll try them myself, beginning with Cashflow for kids. I want to try them myself before recommending to someone.
First, as many speakers say, I have to change my beliefs, my way of thinking about money, expenses etc. And while improving my life and that of my family, I learn what and how to teach our child financial education.

Speakers like R. Kiyosaki, Harv T. Ecker and others tell the same things, that I sum up like this:
-first you have to identify your own belief system
-then you have to identify what is it in that belief system that draws you back from getting where you dream at
-then you change those beliefs to suit your goals
-and after you change them, by changing your mind, you change your attitude etc., hence you can change your life too.

It's a sort of de-programming our minds from what we've been taught by our family, the society etc. in order to find and walk on our own way.

Regarding the age: R. Kiyosaki states (about Financial IQ, in connection to Cashflow for kids) that

Many decisions a child makes are made between 5 and 14

.

[carpe vestri vita]

Kiyosaki has a cult following that I just don't understand. He has lots of books that could all be condensed into a single paragraph if you take out all the filler, illegal things, BS and lies. And none of his ideas are new or even uncommon. I would not under any circumstances buy any of his products. He's a charlatan.

If anyone is curious all of his advice in a single paragraph:

The less work it takes to make money, the better it is for you. Once you make money minimize the tax you have to pay on it. Then take the proceeds and buy yourself appreciating assets, but minimize the cost of carrying these assets. Start a business in which you are expendable so you can pay someone to do your job, and you can collect the companies profits without having to do any work. Repeat. Or buy stocks, preferably ones that have dividends as well as capital gains. Maybe try joining an multilevel marketing (MLM) company to make money from other people's work. Or buy rental properties. Or just write a book about money.


For kids to learn to use money correctly they need to be given money to use, and expectations on how it should be used. I think the most important thing to explain to kids isn't investing, or business, it's budgeting. Once your child can do math they can write up a budget.

A 5 year old's budget will be very simple.
Income:
Allowance - $5

Expenses:
Charity - $0.50
Savings - $1.00
Gifts - $1.00
Treats and toys - $2.50

But the older they get the more money they can manage, and the more responsibilities they have for that money.
By 12 a child should be buying all their own books, toys, treats, clothes, shoes, school supplies, gifts, toiletries, etc. Everything other than the roof over their heads and the food the family ordinarily eats. Depending on your family and your kids, this could be a significant amount of money. Once the child is old enough to get a job (typically 16) they should start working* 4-8 hours per week during the school year, and at least 20 per week during the summer. At this point the allowance remains steady, or even decreases. The child will slowly begin to buy more and more of their own things with their own money. And after college (or 18 whichever is later) they are on their own. If the child still lives at home they are expected to pay their share of the utilities and food.

* By working I mean a job, self-employment, or a business. Anything that requires time and generates income.

Worked for me. I have never been in debt. I have chosen not to work repeatedly since I left school because I could afford to spend out of my savings. I have never wanted for anything. I have my own businesses in which I am only marginally active because I can value my time more than my money. I'm not a millionaire (yet  )  but I have what I want for my kids.

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