One thing that our recent economic upheaval has taught us is how fragile our financial lives can be. When things are going well, it’s easy to overlook your financial shortcomings or not be impacted by a lack of financial knowledge. Things change when the economy takes a turn for the worse. Suddenly, it is very obvious who is prepared and who isn’t, who understands money and who doesn’t. It can be a hard lesson to learn and one we definitely don’t want our children to have to learn the hard way.
What can we do to set our children up for financial success? How can we prepare them so that when their generation’s version of 2020 comes they are prepared to ride out the storm? More important than sending them to college and pushing them to pursue high-paying careers, we need to teach them financial principles that will serve them wherever life takes them. Here are some important financial principles to teach your children, no matter how old they are.
Ages 3 - 5
Even before they start reading, you can teach your children to be wise stewards. Some of the most foundational financial concepts can be easily grasped by preschoolers. Here are several principles that can be learned and understood by this age group that will set them up for success in the future:
Everything ultimately comes from God and is owned by him.
We should be generous and share because that is how God treats us.
You need money to buy things.
You earn money by working.
You may have to wait before you can buy something you want.
There’s a difference between things you want and things you need.
You can’t have everything.
When it comes to this age group, showing is often more powerful than telling. Have them hand money to the person behind the cash register or put it in the offering basket for you. Pay them for doing extra chores or encourage them to set up a lemonade or cookie stand. Talk about your own family’s purchase decisions and why you’re willing to spend money on certain things while not on others.
Ages 6 - 10
Once their young brains have developed a little further, kids can handle more abstract concepts. Elementary-school aged children can start to build on the foundation you’ve already laid with these principles:
What we have has been entrusted to us by God and should be used in a way that honors him.
We recognize God’s provision by giving back 10% of everything we earn.
You need to make choices about how to spend your money.
It’s good to shop around and compare prices before you buy.
Choosing one thing often means giving up another.
It can be costly and dangerous to share information online.
Putting your money in a savings account will protect it and pay you interest.
This is a good age to get out some glass jars and label them GIVE, SAVE, and SPEND. Help your children to make choices about how to allocate their money—before they go to the store. Once at the store, help them compare options and discuss the opportunity costs of choosing one thing over another. This may be a good age to open their first savings account and walk them through the statements to show them what everything means.
Once your children reach middle school, you will find yourself getting more specific as you prepare them for the financial side of adulthood. These are some principles they should be mature enough to wrap their minds around:
Your value as a person is not related to how much money you have.
You should save at least a dime for every dollar you receive.
Entering personal information, like a bank or credit card number, online is risky because someone could steal it.
The sooner you save, the faster your money can grow from compound interest.
Using a credit card is like taking out a loan; if you don’t pay your bill in full every month, you’ll be charged interest and owe more than you originally spent.
Credit cards can be dangerous to young people who don’t understand how they work, so you should start teaching your kids long before they are old enough for one of their own. Show them your credit card statement where it tells the cost and time involved if you only make the minimum payment. Explain how one purchase can end up costing twice as much or more because of interest. Discuss with them how paying the interest means giving up spending that money on other things they may want or need.
Ages 14 - 18
The high school years are a parent’s last chance to mold their children before releasing them into the world. If they start to work for pay, it’s an excellent opportunity for hands-on practice of adult money management with you by their side to guide them. It’s also important to help them think through the costs of higher education so they don’t end up saddled with unmanageable student debt. Do your children a favor and make sure they understand these concepts before they leave home:
Our money is not our own, we are only stewards of God’s resources and will answer to Him for our management of it.
When comparing colleges, be sure to consider how much each school would cost you.
Student loans have to be paid back, with interest.
You should avoid using credit cards to buy things you can’t afford to pay for with cash.
Your first paycheck may seem smaller than expected since money is taken out for taxes.
If you earn money, you will have to file a tax return every year.
A great place to save and invest money you earn is in a Roth IRA.
When your child gets their first job, walk them through their pay stub and explain tax withholding to them. Walk them through a tax return (or have them sit with you as you go through your tax software) so that they can see how it all works. Discuss your own personal finances with them, sharing both your successes and regrets. When considering student loans, calculate how long it would take to pay them back based on your child’s major or career path.
Do You Need Help?
If your children leave home with a firm grasp on the above principles, you will have given them a solid financial foundation that will serve them well throughout their lives and likely for generations to come. Don’t be intimidated if you yourself haven’t lived out these principles, you can still teach them. Your children can learn just as well from your failures as your successes, and sometimes even more.
Does the thought of teaching your children to be wise stewards make you uneasy about your own financial management? We can help. At Guide Financial Planning, we are here to help you assess where you currently stand and come up with a plan to align your finances with your values and move you towards your goals. If you could use some guidance on your stewardship journey, schedule a free introductory call today.
About Guide Financial Planning
Guide Financial Planning is led by founder Ben Wacek, who is a Christian fee-only Certified Financial Planner™ and Certified Kingdom Advisor®. He has a passion to help people of all income levels make wise financial decisions and steward their resources from an eternal perspective using Biblical principles. Based in Minneapolis, MN, he works with clients both locally and virtually throughout the country and abroad. You can follow the links to learn more about Guide Financial Planning and our team and the services we offer.