Teaching personal finance is badly neglected in America. Zela Wela is changing that. Nancy Phillips joins us to discuss teaching kids about money.
Kids develop their beliefs about money at the same time as they develop them about everything else, during the formative years. By age seven, their ideas are in place. A good age to start is between two and three.
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Because the learning needs to start so early, parents are the ideal teachers. Kids will observe and model the behavior of their parents. A two year old won’t understand what a 401K is but they can understand choice and are capable of making them. They also understand accumulation. A big pile of strawberries is better than one strawberry. It’s strawberries when you’re two but that lays the ground work for understanding a big pile of money is better than a little pile and how to grow the pile.
GISS: Give, Invest, Save, SpendTweet This
Giving young children an allowance is a powerful teaching tool. Zela Wela recommends the GISS method, give, invest, save, spend. Part of the allowance is to give, part is invested, part is saved, and part is their’s to spend as they wish. Zela Wela has a book that shows how to build four little banks for each portion of the money. It’s fun for the kids and reinforces the behavior of saving in four distinct areas.
Do you just give the kids an allowance or do they have to earn it? Zela Wela advocates “mini allowances.” Giving a small amount regularly and if they want more, that money can be earned through larger chores or creating income another way. The regular amount means that kids are consistently managing money even if they don’t have a lot of time that week to earn money through chores or entrepreneurial activities.
You don’t need to be a financial genius to teach your children about money. Just make sure it’s something that is in the foreground of day to day life and your children will be well ahead of their peers.
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FamZoo: A money tracking system geared towards children.
Betterment: Set an example by investing.