Raising a Financially Savvy Child

My wife, daughter and I were sitting at the breakfast table this morning when my daughter, who’s 5, randomly told my wife, "There are a lot of advertisements that are just trying to take our money."  Over the last year or so when we are reading the paper and looking at advertisements I’ve tried to make a point to our daughter that sometimes you can find a good deal in an advertisement on something you NEED, but normally ads are only good for one thing and that is to convince you to give some of your money to someone else.  Apparently it’s starting to sink in.

After my daughter said that, we decided to play a little game.  We created fake credit cards out of small chunks of paper and started talking about the concept of credit.  My wife was the "store", I was the "bank" and my daughter was the consumer.  I explained to my daughter that I was going to give her a credit card that was worth $10.  She could do anything she wanted with that $10 on the credit card but if she spent it on something at the "store", she needed to be prepared to pay me back the $10.  Since she is 5 years old, the concepts took a little while to sink in.  The first time she went to the store, she opted to buy something for $10 and then she expressed that she was happy because she bought it.  After she bought it I looked at her and said, "I’d like to have my $10 back please".  She looked at me with wide eyes for a second until I said, "Oh, you don’t have $10?  Please give me your item from the store then.  You obviously can’t afford it."  She gave it to me and you could just see the wheels turning in her head.  We did this a few times until she kind of got the point and then we had a discussion about what it means to be able to afford something.  We pointed out that when we buy something, we always pay with money that we already have.  We don’t like to borrow from other people because then we would have to pay them back.  She really got that point and then we talked about other situations where people might have made bad choices by borrowing someone else’s money to buy things that they didn’t really need.  As she gets a little older, we’ll introduce concepts like interest, and how it actually costs MORE money to buy something when you borrow someone else’s money.

During the discussion we also talked a little bit about why mommy and daddy have jobs.  She quickly jumped in and said, "You and mommy work because they pay you!".  I smiled and told her she was right.  It was a perfect opening to start talking about the desire of mommy and daddy to stop working some day so that we can spend more time with each other and her.  She really liked the idea of spending even more time with us and was glad to hear that by saving some of our money each month, we’d be able to do that some day.  We’ll definitely have more conversations like that in the future.  As she begins to understand basic math and other logic, we’ll explain in more and more detail.

Anyway, it was a very rewarding breakfast table chat this morning for a geek like me that loves to think and talk about basic financial concepts.  My hope is that my daughter will begin to start using her own judgement on when it’s a good idea to spend some of her money and when it might be smarter to save it.