August 16, 2014

Brooker: Lessons in financial literacy

It won't be long until school starts. In addition to reading, writing and arithmetic, try incorporating financial literacy into your child's curriculum at home.

It won't be long until school starts. In addition to reading, writing and arithmetic, try incorporating financial literacy into your child's curriculum at home.

Lesson 1 – Budgeting: Believe it or not, one of the biggest challenges for many is developing and maintaining a budget. The good news is that budgeting is one of the simplest concepts to teach children at any age. Try an allowance.

When I was in elementary school, I remember receiving an allowance of $6 per week. With that money I had to buy whatever I wanted that week after I gave $1 for church and $1 for Sunday School. Most weeks I did not spend the other $4, but instead saved it until I saw something that I really wanted to buy. When children get allowances and parents hold them accountable for their own spending, both parties win.

Parents benefit because the whims of begging children in Wal-Mart no longer blow their budget. Instead, kids can make all frivolous purchases with their own money. Children benefit by learning how to allocate money to different areas such as giving and saving and often begin to make more thoughtful spending decisions. You will be amazed how the 12th dump truck loses its luster when Junior has to use his own money to buy it.

Lesson 2 – Interest: Somewhere during your child's education, they will learn about compound interest. When the time comes, seize this opportunity to explain how it can work in their favor for investing or to their detriment in borrowing. Show them how investing young can help them build wealth over time.

A simple exercise that simultaneously teaches about interest and encourages good grades is by showing them the cost of a college education. Ask them what college they want to attend. Then tell them to Google the cost of attendance.

Then, go to an online calculator to determine the total cost of that degree if they acquire student loans to finance their education. Finally, show them how scholarship money can dramatically offset, if not eliminate, that cost.

While the numbers may be overwhelming, it teaches kids that they can determine the ultimate cost of their education by the amount of work they put into their studies right now. It also serves as a wakeup call to parents to consistently encourage their children to strive for excellent grades, not mediocre.

Lesson 3 – Balance a checkbook: With the advent of the debit card and online banking, the odds are that our children will rarely write a check. Nevertheless, it is important that you teach your children how to balance a checkbook. A perfect time to initiate this ongoing dialogue is early in high school. One option for hands-on learning is a pre-paid debit card.

This gives them the opportunity to make mistakes and ask questions years before they leave the comfort of your oversight. While these accounts normally have a fee to put money onto the card, many have guardrails that will keep them from overspending. Since overdraft fees are more expensive than the cost to add money to one of the pre-paid options, you will probably save money from the mistakes that your child is likely to make. Then, after a few years of using this responsibly, your child will be old enough to legally open a checking account in his or her own name.

Life is a journey. Plan for it.

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