The following guest post is the first of a three-part series by Dr. Douglas Rice, who volunteers as a financial planner with United Way’s SparkPoint program. SparkPoint Centers are one-stop financial education centers that help families move out of poverty and achieve lasting financial stability. Learn more at www.sparkpointcenters.org.
If financial literacy were taught in educational institutions as well as it is taught by the school of hard knocks, then parents wouldn’t have to worry about their kids learning about money. But because experience is typically the way most people learn best, and in finance, that can be expensive, perhaps a few lessons about money might save the kids – and you – a few bucks.
Specific money lessons are easy to find. You’ll often see information like “10 tips on taxes,” “five ways to find a mutual fund” and “seven ways to save money.” But what’s missing is a way to make decisions. The best way to think about money is so that decisions aren’t based on a set of rules that can change, but on a set of guiding principles. With that in mind, here is the first of three lessons to teach your kids about money.
Lesson #1: Money is Stored Work
If you think of money as stored work, decisions about saving and spending become much easier. Ask, “Would you spend the weekend working in exchange for that toy?” By framing the question like that, the relationship between cost and value becomes much clearer. Without an understanding of value, how can a kid make a choice? They just want everything because money has no value.When it’s stored work the kid is spending, the toy isn’t valuable. But when they have to do chores for two full days to pay for it, or even just know how much you have to do to pay for it, all of a sudden you may have a little miser on your hands.
If you’re having trouble with the concept, remember that the reason we need to use money is because the barter system is unwieldy. No one wants to trade chickens for corn because our options would be limited to what we could make ourselves. We use money to facilitate the transaction so we can all have chicken and corn, but trade our skills in exchange for it.
Also, by teaching them about money as stored work, you are teaching them about work. Once connected, the two things allow decisions to be made about school, careers, skill building and more. This should drive home more lessons than just how to balance a check book.
Check back later this week for the next Money Lesson for Kids.
Dr. Douglas Rice is a certified financial planner and registered investment advisor. For more information about financial planning or Dr. Rice, visit www.douglasrice.com.
Photo courtesty of Razor512 via Creative Commons license.
Possibly Related posts:
[...] This post was mentioned on Twitter by Bay_Area_UW, Douglas Rice. Douglas Rice said: My article on lessons about money for your kids is now part of a series at United Way Bay Area. Check it out http://bit.ly/g2c6qF [...]