Last week’s post was all about laying the foundation for finance with your 0-4 year old. This week we are turning our attention to how we can teach our 5-7 years olds how to be money wizards!
Ages 5-7 Years
Here’s where the real fun begins! This is an age where your child’s development and learning capacity is prime for some awesome financial lessons, and if you’ve laid a solid foundation from 0-4, you will start seeing your child display habits and thought processes that will make your chest puff with pride.
Sadly – this is also an age where most kids get absolutely ZERO financial literacy skills taught to them.
Parents – let’s change that!!!
Here’s a quick checklist of the area’s to focus on:
If they are the oldest sibling – now’s the time to introduce regular family meetings. If they are a younger sibling, they’ve probably been attending, or at least hanging around the meetings for awhile, but now is the time to transition to an “If you want input – you need to attend” approach;
Help them build an income stream;
Start doing their annual “Taxes” with them;
Involve them in the selection of their investment portfolio;
Involve them in the selection of charitable organizations to donate to;
Help them research purchases;
Make price checking a family affair;
Teach them how to conduct an hours of fun calculation for items they purchase;
Develop and take advantage of opportunities to talk about peer pressure when it comes to “things”;
Modify their chores to match their ability, and adjust their “compensation” appropriately.
The Family Meeting
If your child is the oldest sibling, then this is a great age to introduce a regular family meeting where they can attend and contribute to the dialogue. Whether you follow the structure I’ve outline in last week’s post, or you modify it to suit your own families individual needs, the family meeting provides a forum to have open communication as a family unit, allowing your children to weigh in on everything from meal planning to family vacations.
If you’ve already been doing regular family meetings with an older child, this will be the age range where you want to transition from allowing your younger child to flit in and out of meetings at their desire. I’m not a big fan of making attendance mandatory, but I do like to maintain a firm rule that if you want to have your voice heard, you need to be there. If family meetings are a fun and productive opportunity for your kids to have input, odds are, they’ll want to be there.
There is no reason that a 5-7 year old can’t run a successful business! They’re ability to be creative and work hard at an area that interests them always amazes me.
There’s no doubt – they will need some parental assistance at this age, which means an investment of time on your part, but encouraging them to make some independent money will allow them to have more cash to spend, save and give. That means more experience learning how to be a savvy consumer, investor, and how to select and donate to responsible charitable organizations. The future ROI on your time is well worth it.
It’s also an amazing way for your kids to build up self-esteem, confidence, and an overall sense of independence and capability.
That doesn’t mean they need to come up with a plan all on their own. Guide them through some options, and help them understand different ways to make money. Because you will need to provide ongoing assistance with whatever business model they want to pursue, you want to help guide them to do something that you are able to facilitate, and will actual be doable given your family circumstances.
So whether it’s collecting bottles to return for deposits (a business that Mike has helped our oldest son with since he was 7, and one that we will start much earlier with our youngest), dog-walking for a neighbour (with you of course), plant sitting when friends/neighbours go away (I am ALWAYS in need of someone to water my gardens when we go away!), or creating a craft item they can sell online or at local fairs, there is no shortage of options when it comes to age appropriate methods for building income streams!
Fun things to do with your child when building their business include designing and ordering them their own business cards, (they will love to hand them out to friends, neighbours and family, and it’s so easy and inexpensive to do online these days!), creating flyers together to advertise and promote their business, or attending school/local craft fairs if they have a product they can sell or a service they can advertise.
Start Doing Their Taxes
When our oldest son turned 5, we started an annual tradition of doing his “taxes“. We scheduled them around tax season as a built-in reminder to ourselves, and got him his very own spiral notebook to log his “tax records” into.
We used this as a platform to ask him what he thought his values were for the upcoming year. At this age we provided him with a list of common values (family, helping others, new experiences etc), talked through the examples, and then asked him to choose what his top 3 were.
Once those 3 values were firmly established, we moved onto helping him calculate and write down what his total amount of spending, saving and giving had been over the previous year. This gave us an opportunity to review his investment and savings account and talk about the performance of his “portfolio”.
From there we asked him to set goals for his saving, spending and giving targets for the upcoming year, helping him to set the bar a little higher while still being achievable.
This is also where we fall back to the values that he sets at the beginning, asking him if there are any specific goals that he would like to save money for during the year that align with the values he has set. Whether it’s increasing charitable giving to align with helping others, or saving for a day at a theme park to align with family time, or saving for a new video game to align with spending time with friends, we help him to identify three goals for the year that align with his values.
The first year we did it, one of his goals was to save up the money to rent a Jet-ski on our families summer vacation. He reached his goal, we had a blast taking him out on the Jet-Ski, and it was an extremely memorable experience for all of us. One that he took a lot of pride in knowing he facilitated.
The whole process is designed to help him understand the importance of first identifying what is important to him, and using his money as a tool to facilitate those things. Not to mention that the notebook will be a pretty cool (small and compact!) keepsake for him to look back on in years to come.
This is also the age to start talking to them about where their money is being invested. This doesn’t have to be complex, but give them opportunities to weigh in by discussing carious funds/companies that you are considering, OR ask them about companies that they really like.
You absolutely do not have to get technical with these conversations, but you can easily talk to your kids about Coca-Cola, what you think of their products, do you like/dislike their products, are they a business that aligns with your family values or contradicts them? This will help teach your child that there are many factors to consider when evaluating an investment other than profit margins alone.
By starting your child giving early, they are already going to be very familiar with this concept. But this is the age where you can start to offer your child some choice and input regarding where their charitable giving is going.
I would recommend starting this by selecting 2 to 3 charities that you feel are appropriate, and reviewing them with your child. Discuss what each charities objectives are, and where the money will likely be used. Then, from those 2-3 charities, allow your child to pick which charity they would like to donate to.
This helps them to engage further in the process, without overwhelming them with options. I also find it to be very interesting to hear your child’s thoughts as they work through the selection. Kids are incredibly empathic, and their perspective on charitable giving can often impart great lessons/reminders to us as parents!
Many schools have compassion programs that allow donations to be made to purchase hot lunches for kids who cannot afford them, or even to cover field trip costs for kids that would otherwise not get to go. This is an excellent, close to home option that can allow your child to relate directly to the cause, and develop gratitude for something they may generally take for granted.
When it comes to spending, hopefully you’ve already been giving your child lots of opportunities to spend their money and experience the outcome of those decisions. Now is a great time to introduce the concept of consumer research into their spending repertoire.
When your child comes to you and asks to make a purchase from their wish list, teach them the habit of conducting their due diligence. Go online with them, and show them how to research the product, read other customer reviews with them, and check prices at a few different locations in order to ensure they are getting the best bang for their buck.
Then, once they are familiar with the product and price point, shoe them how to check used sites to see if there are good options in the second-hand market that would provide a similar user experience with a substantially lower upfront cost.
While you will have to walk your child through this process for the first while, and likely provide some assistance with search terms and reading reviews early on, it will probably surprise you how proficient they get at going through this exercise with minimal assistance.
This is almost a mandatory exercise for the majority of purchases our oldest son wants to make, and now he does it independently and reports his findings to us when we are discussing the purchase.
This ability to conduct research has the added benefit of easily transferring to many other aspects of his life, whether its to support a project in school, or simply further his knowledge about a topic of interest, knowing how to conduct thorough research gives kids the power to inform themselves independently.
The Price Is Right Game
When you are running errands and about to gas up the car, do you glance at a few of the gas station prices on your way? Choosing the one that’s the cheapest?
When you buy your groceries, do you check brands and compare product amounts to get the best bang for your buck?
If your reading this blog, your probably a person who does it intuitively. So bring your kids in on the game. Verbalize what you are doing, and recruit them to help you out!
They will LOVE trying to spot the cheapest gas price, or find the best price for size bottle of ketchup on the grocery shelves. Not only will it make the process of running errands less boring for them, they can take an active role in generating savings for the family.
Employ a similar tactic when it comes to buying presents for their friends birthday parties. Set a budget, and have them help you pick something out that their friend will like, but meets the budget.
The Cost Per Use Calculation
This is also the perfect age to introduce the Cost Per Use calculation. Remember Stacy and Clinton from TLC’s What Not to Wear show? In my twenties I was known to binge watch that show here and there, but one of the lessons they were always trying to convey to their guest and viewers was to evaluate the clothing purchases based not on purchase price, but cost per wear.
For instance, a $20 pair of pants worn once has a cost per wear price tag of $20, while a $100 pair of pants worn 50 times has a cost per wear price tag of $2.00. It was a valuable lesson. One that I have borrowed and slightly modified when it comes to our kids making purchases.
Whenever our oldest purchases a toy, I ensure I revisit that purchase with him around 6 months down the road. We discuss how much he’s used the toy, how much he’s enjoyed it, and estimate a rough number of hours of use the toy has gotten. We divide the purchase price with the estimated hours of use for a price per hour of fun outcome.
This past year we did the hours of use calculation for two similar toys he had purchased. The first was for a trendy fad toy that we agreed he could buy after about 2 months of him pining after one. Because it was a fad toy, all the stores were sold out, and his options were pretty minimal. He ended up spending nearly $30 on a fidget spinner. He used it a handful of times, with an estimated 5 hours of use, for a total of $6.00 per hour of fun.
The comparison toy was a Rubik’s cube that he had purchased with some birthday money. He had been inspired to learn how to solve one, and also spent nearly $30 on that purchase. He invested hours working with his Dad and I, learning the steps, watching Youtube videos on his own, and reviewing some instructions Mike had printed for him. He took it to school and taught his friends how to solve it, and even ended up asking for more complex Rubik’s cubes for Christmas. We’ve lost track of how much time he has spent learning about and playing with the cube, but it’s easily far beyond 50+ hours, bringing his hours of fun cost down to sub 60 cents.
For two toys with similar price points, it was an excellent opportunity for him to compare purchases, and easily identify which toy he has gotten substantially more value out of.
It’s always a fun exercise, provokes some meaningful conversation and insight, and it helps him build reference points that he can reflect back upon when making decisions for future purchases.
The cost per use exercise is also a great way to have conversations about peer pressure when it comes to always having the latest and greatest.
My example of our son’s fidget spinner purchase gave us a big opportunity to talk about fad toys, and how quickly they went from being sold out everywhere, to being able to buy them at the dollar store for a fraction of what our son had paid for his.
Reflecting on the experience, and whether or not he really wanted or even got substantial value of the fidget spinner allowed him to build perspective. Perspective that came in very handy when the next latest and greatest toy popped up at school, the fidget cube (insert eyeroll here!)
That perspective and experience wouldn’t have happened though if he hadn’t made the purchase in the first place. Mike and I both knew what was going to happen, we both knew it was a fad toy, we made him wait a number of weeks to decide if he REALLY wanted to spend his money on the item, and when he did, we let him. Even though he really only wanted one because other classmates had them.
In the big picture, it was a small upfront price for a valuable lesson. One that made a much bigger impact on him because it was HIS money.
Building their own perspective and experience on the value (or lack thereof) for having the latest and greatest is the best defence against the keeping up with the Jones’ mentality. Rather than us constantly denying requests for new stuff, the hands on experience of making a purchase “mistake” with their own money can help them develop the maturity, insight and perspective to decide for themselves that they don’t need to fall victim to the trends. Leaving them feeling empowered and confident in their own decision making abilities (including explaining to their friends why they don’t feel they need “it”)
Giving your child responsibility within your household is awesome, BUT don’t forget to level up those responsibilities as they age. What they are capable of contributing at 3 is a whole lot different than when they are 6, 10, or 14! So make a habit of evaluating their chore list annually, and make appropriate adjustments.
I update ours every September. New school year = new chore list. And the older your child gets, the more input they can have in this area as well.
If you liked the WII dollar method I described in last week’s post, this is an AWESOME method to continue for kids in this age range. This is the age where our oldest REALLY started to get the concept of looking ahead, managing his WII dollars, and making sure he spent wisely.
It was at this age that we also introduced the concept of WII dollar free vacations, meaning that anytime we went on vacation, he was exempt from having to spend WII dollars and had free reign of screen time. BUT with the caveat that we expected him to manage his time responsibly, and that if we saw that he was abusing the freedom, or spending too much time on his IPAD etc, that we would take over control of his time during vacations.
That has been an awesome experience all on its own. It gives him an opportunity to build and implement self-discipline outside of the boundaries of the WII dollars. As a kid with a major independent streak, he loves the freedom to make his own decisions around when he uses his devices, so he’s been extremely mindful to keep it to a reasonable amount.
There have definitely been times when we have had to take control of the device, but there are many others where he has developed strong strategies about how and when he is going to use it while we are away, and had the self-discipline to stick to it!
IE: On one vacation he decided he wasn’t going to recharge his IPAD at any point, so he had one charge and had to manage his usage over the duration of the vacation. On another, he decided that he would allow himself one hour per day in the mornings to use the IPAD.
It’s been great to watch him being creative with setting his own limits, all of which will culminate in a time when we eliminate the WII dollars entirely and entrust him to be responsible and mature enough to manage his own screen time (with full knowledge that if he abuses that privilege – he’ll lose it.)
Teaching our kids about finance is all about looking for the opportunities to discuss the thought process that goes into our day to day decisions. From spending, saving and giving, to how we make up a grocery list, choose where we take our family vacations, or decide on an appropriate gift for a family member or friend.
Everyone of those is an opportunity to have a discussion about budgeting, being a mindful consumer, and evaluating return on investment.
When we start thinking about it from that perspective, it becomes easy to talk money with our kids, because there are opportunities around every corner. If you have some tips and tricks you use to create opportunities to talk money with your kids, leave us a comment below! We love hearing your ideas!
As always – thanks for reading, and check back next week when we’ll continue this discussion for ages 8-10.