As was noted in this space at the start of July, the number of states requiring at least one financial literacy class to attain a high school is rapidly growing and that’s a good thing.
Still, one high school class isn’t going to cut it and it’s unfair to task schools with complete financial education for youngsters. Yes, that implies there’s some “burden” on parents, but it’s more opportunity than obligation and the earlier parents get started with doling out financial wisdom, the better off their kids will be.
Some experts say the recently launched Trump Accounts are ideal for dispensing sound investing wisdom to young people, particularly when it comes to the virtues of diversification and investing for the long-term.
It’s up to parents to decide if they want to embrace Trump Accounts. Whether they do or don’t doesn’t preclude them from capitalizing on access and proximity to help their kids become “financial warriors” before going off to college and entering the workforce.
Lessons for Essential Age Ranges
In a new report – one parents should read -- State Street Investment Management offers up various strategies for teaching kids across different ages about money. In the essence of time, I’m going to abridge the lessons for six- and 10-year-olds.
As State Street points out, money lessons for six-year-olds can be taught through the vehicles of ice cream and piggy banks. Ice cream stands as a diversification metaphor. As in if your six-year-old loves chocolate ice cream, try to get them to embrace other flavors as a diversification teaching tool. The piggy bank is a compounding/savings device, teaching the child that it only grows when money enters it, not when it’s withdrawn.
For 10-year-olds, the lessons of diversification and compounding can be taught through school projects and more sophisticated reading choices. Alright, onto lessons for young teens – an age cohort in which money awareness really starts to take shape, especially when it comes to compounding, diversification and costs.
Thirteen- or 14-years-old is an ideal time to impart lessons such as incremental savings and investing can morph into something substantial. Additionally, young teens are particularly pliable when it comes to learning about things such as cost/benefit and time value of money.
“Teenagers quickly learn that the advertised price is rarely the final price. Online purchases include shipping costs,” notes State Street. “Concert tickets often include service fees. These costs may seem small on their own, but they add up. As with investing, the more money spent on fees, the less money available to put toward the goal itself.”
18: Legal and Learning
Eighteen is often viewed as a seminal age if for no other reasons than that it’s legal voting age and the age at which many kids graduate high school and head off to college. Important factors to be sure, but it’s also an ideal time for parents (emphasis on “parents”) to ratchet up financial education.
Although 18-year-olds are still a few years from entering the workforce, it’s an ideal time to teach them that diversification matters on their journey and compounding (acquiring and mastering multiple skills) can pay dividends in their professional pursuits.
“Young adults also quickly learn that what they earn and what they keep are not always the same thing,” adds State Street. “Two jobs may pay identical salaries, but if one requires higher commuting costs, less money is available to save, invest, or put toward future goals. High costs can erode investment accounts in a similar way.”
These are lessons worth teaching. After all, your kids may be managing your money and taking care of you in your later years.
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