As a financial advisor, you help your clients navigate the increasingly complex financial environment. But you’re also in a unique position to help educate your clients’ children. After all, the earlier children are introduced to the fundamentals, the more likely they are to become informed investors later in life.
So, if you’re considering adding financial education services to your practice, this guide to teaching financial literacy to your clients’ children can be a great starting point. We’ve included learning tools and age-appropriate money tips, as well as guidelines for helping parents start the money conversation.
Talking About Money
Talking about money with their kids can be hard for some parents. To help them get the conversation started, offer these general guidelines:
- Encourage clients to be open about family finances.
- Have them discuss the family’s weekly, monthly, and annual spending habits.
- Advise parents to talk about how and why some things are bought on credit and others with cash.
Parents should also discuss short- and long-term financial goals, including the actions needed to achieve those goals—for example, delaying gratification, spending less on nonessentials, saving more, or postponing a goal to a later date.
Instilling Good Financial Habits
To reinforce the money conversation, there are simple ways your clients can help instill good money habits in their children, no matter their age.
Younger than 4. As soon as children show interest in money, there are many teaching opportunities. Encourage parents to:
- Offer toys that incorporate counting.
- Take children shopping, which presents opportunities for lessons on spending, saving, and delaying gratification.
- Play counting games with coins and use piggy banks.
Ages 5 to 7. By this age, children can grasp that money has several purposes. Your clients can:
- Offer board games that highlight financial decision making.
- Introduce the Money Savvy Pig, which features individual slots for saving, spending, donating, and investing.
- Open a passbook savings account for children and discuss savings and compound interest. Here, it’s important to let kids withdraw some of the money they’ve deposited and buy something they’ve wanted. Young children who see money going into an account but never coming out may lose interest in saving.
- Institute a matching contribution incentive program; that is, if the child saves money, the parent will match it.
Ages 8 to 12. For this group, parents may offer resources on the web (discussed below) to help kids learn basic money concepts. But it’s also an ideal time to introduce an allowance. Here, be prepared to answer some common questions:
- How much? A good rule of thumb is $0.50 or $1 for every year of age.
- How often? A schedule can help establish regular payments (weekly or monthly at the latest).
- How much should be saved, spent, donated, or invested? Expectations should be set from the start; each time the child is paid the allowance, the agreed-upon process should be followed.
Ages 13 and up. Once the child is a teenager and has demonstrated some maturity with handling cash, parents may consider introducing a debit card or a secured credit card with a low limit. This is an ideal opportunity for you to offer financial education. Advise parents to:
- Sit down with the teenager every month and go through the process of paying the credit card bill together.
- Show the teenager how to file a tax return if he or she is working.
- Plan with the teenager how to save over the long term for more expensive things, like a car or college, and introduce investing for these purposes. If the teenager has a job, suggest that parents open a Roth or a traditional IRA.
- Encourage the teenager to use a compound interest calculator like this one to understand how account balances can grow over time.
To get more hands on, consider hosting an investment club meeting for teens—a forum for discussing the pros and cons of investing in stocks and bonds and sharing your expertise. You might also bring in a speaker to promote sound money habits and provide tips for avoiding financial pitfalls.
Keep in mind that the most effective approaches are fun, hold kids’ attention, and allow them to practice making money decisions. With this in mind, I’ve compiled the following list of books, games, and Internet resources.
One book that is consistently recommended as a standout is Neale S. Godfrey’s Ultimate Kids’ Money Book. As one of the first female executives of Chase Bank, Godfrey covers all aspects of money and finance, including topics such as the economy, government policy, and investing. This book is organized into 10 chapters full of engaging, colorful drawings that help kids (ages 8–12) understand financial concepts through real-life scenarios.
Here are some other books your clients might add to their reading lists:
- Growing Money: A Complete Investing Guide for Kids, by Gail Karlitz and Debbie Honig
- Raising Financially Confident Kids, by Mary Hunt
- Smart Money Smart Kids: Raising the Next Generation to Win with Money, by Dave Ramsey and Rachel Cruze
Playing to Win
Another excellent teaching tool is something that your clients most likely have at home: board games.
Monopoly. Earning money, saving and spending, capital budgeting, risk and reward, expenses, and even taxes—Monopoly covers it all. Plus, new editions of the game translate financial lessons to today’s world.
- Monopoly Electronic Banking does away with the paper stacks of cash, but its debit card system for transactions helps reinforce lessons about credit cards. There’s also a free digital version.
- Monopoly Junior, geared toward the younger player (ages 5 and up), replaces traditional properties with locations such as the pet store, candy store, and the arcade. In this version, the rules have been simplified, and single dollar bills are used for all transactions.
The Game of Life. In this classic game, players make life decisions that are tied to financial outcomes. Kids must choose a career (e.g., video game designer, secret agent), decide whether to buy/sell a house, and make other life decisions to see which ones produce the most wealth at the game’s end. I can’t think of a better financial teaching tool disguised as a game! (It also comes in a junior edition for younger players.)
Financial Education on the Web
Last but not least, the Internet is perhaps the biggest educational tool of our time. One of the best sites for teaching kids about money is Monetta, which offers interactive educational games (e.g., Math Balloons, Financial Soccer, Road Trip to Savings) that balance investing, learning, and fun. The site also features a quarterly newsletter for kids and a financial education kit, including a money-themed activity book, a savings bank, and other educational materials.
Some other great resources around the web include:
- The Mint, a comprehensive money education site that includes sections for kids, teens, parents, and teachers. Launched in 1997, it helps users manage their money with the goal of securing a sound financial future.
- The Centsables, a financial literacy program for children that uses superheroes to make learning more fun. It features online games, a library of comic books, and a section for parents with tips for starting financial literacy at home.
- Quest to Clean Up, an app that encourages careful spending, teaching kids the value of saving their money for items they really want.
- GreenStreet, an app featuring game play to help kids with setting goals, budgeting, earning money, and giving to charity. Players can rescue endangered animals, but they must budget accordingly to buy food, shelter, and toys along the way.
Advisor as Educator
Today’s children will be tomorrow’s leaders. Teaching them about money matters now will stand all of us in better stead in the future. By providing financial education services, you can both encourage clients to discuss basic money topics with their children and show that you genuinely care about their family’s financial well-being. Plus, as these children grow up and accumulate or inherit wealth, they may be more likely to turn to you for continued counsel if you’ve already made a positive impact on their financial lives.
What resources do you recommend to your clients who are interested in teaching their kids about finances? What's on your financial reading list? Please share your thoughts with us below.