In my home, we have always maintained an open culture of communication, and we talked about money management first and foremost. Teaching good financial habits, such as savings and budgeting, is one of the best ways to prepare children for a secure financial future. We often talked about staying open and investing to meet goals, such as big shopping in the future and even leisure. These are just a few examples of the concepts we’ve covered, but the journey continues today.
It is important to teach children to establish financial management skills and strong financial skills regardless of their level of wealth. The good news is that Vanguard provides tools and resources to guide families in this discussion. And in this time when many families are spending more time together at home, now is a great opportunity to use some of the activities below.
Young children (under 11 years old)
A great way to start teaching young children about money is to explain its value and its effectiveness to the world. Kids often focus on reward-based systems, where they earn a reward for good behavior or academic achievement. Use this time to teach them how to make money as a reward and divide it into 3 categories: To spend, Save, And Give it to me. For example, spending can be related to buying a fun treat or toy, saving can be taught as a way to buy what they want in the future, and giving how you help with needs.
Activity: “Money Jars”
- Set up three separate containers for the “bank account” and label them To spend, Saving, And Giving.
- Each week, provide opportunities to earn money using real life experiences, such as listening well, finishing homework early, or doing simple chores.
- At the end of the week, calculate how much money they made in each category.
Tip: Sometimes when it’s time to share ideas Savings With your child, it may be helpful to explain that you are “paying yourself for something fun in the future” and that it relates to an age-appropriate concept that they can understand. You can change the path of this activity. For example, if your child puts extra money in them Saving Jar, you can provide some extra dollars to help them understand Meet interest– How saving money can help them earn more over time. If they accept money as a gift for a holiday or celebration, bring out jars of money for a refresher. Repetition and reinforcement become important in learning any discipline, especially money management skills.
Preteens and young adults
Parents often associate their children with years and ages as they desire more freedom and more options. In this case, keeping money management and financial literacy tied to something relevant in their lives can help keep them busy. For example, I know that many young people are interested in gaming, so try to relate the investment to playing a game. Before they start the investment game, provide an overview of their stock, bond and cash concepts and how they work differently as different players in the game. The different players in the game all come together to form an investment strategy. Depending on a child’s age, engagement, and appetite for this discussion, consider introducing the concept of model portfolio building. Review the model portfolio that shows the different asset allocations and then choose a portfolio for each member of the family. Once family members have chosen a portfolio, discuss what they had about the portfolio. This will help strengthen the importance of resource allocation and diversity.
Activity: Investment Simulator
- Google the phrase Investment Simulator; Many are available online.
- These simulators allow you to invest in a variety of securities and monitor their performance over time.
- Have frequent conversations with your child about his or her portfolio performance. How would they feel if they had real funds in the market that they “lost” or “gained”? This can help strengthen the concept of risk and reward in investing.
College graduates and beyond
At this stage, they may be ready to digest more advanced things. Discuss the importance of goal-oriented investments and ask them to think about their next big purchase তারা are they saving for a car, making a down payment for a home, or keeping money in the IRA for future retirement? Ask: What is their deadline for that investment? When do they want to reach that goal? It helps to teach the importance of time horizon because it is related to investment; The more time a person saves and invests, the more likely they are to succeed in reaching their goals. Depending on their current situation, they may also have student loans to repay. Budgeting can be a critical issue at this time and it can be helpful to sit down with them to create that budget. This is another important element of financial literacy and money management and connecting it to an important life stage can make it more relevant.
Activity: Investor Questionnaire
- Let each member of the family take our investor questionnaire.
- Discuss the results that each member of the family has achieved and relate them to the previous discussion of goal-oriented investments mentioned at the beginning of this section.
As I said at the beginning, the journey of teaching my sons good financial management skills and financial and investment literacy continues today. During the COVID-19 epidemic, I spoke with many of our clients who are using it Extra When discussing these ideas with their children. It’s never too late to start communicating – start as early as possible and make education relevant to their age and stage of life as much as possible. If you have any questions, Vanguard helps provide resources to help you and your family.
To learn more, watch this short video of Vanguard clients Siana and Colin talking about growing up financially educated adults.
All investments are at risk, including the potential loss of money you invest.
Diversity does not guarantee gain or protect from loss.