Mastering Life Skills: Elementary Personal Economics for Kids

 

Teaching Financial Literacy from Kindergarten through College

Evelyn Smith

The principles for teaching financial literacy to teens, preteens and elementary school children are similar:  Children first associate income (and working) with expenses, then develop a budget, and depending upon their age, they then need to divide their budget into necessary, day-to-day expenses, mid-term plans and long-term goals, making sure that their expenses don’t exceed their income, and coming up with plans to save and grow their money.  While preschoolers use a piggy bank, elementary school children can put their allowance from doing household chores into individually labelled jars while preteens and teens can learn to keep a cash flow journal and prepare a simplified budget using a spreadsheet.

Using the jar system, helps children to allocate their allowance income.

Teaching Money Management to Elementary School Children:

Learning Budgeting Begins Early

First of all, learning how to budget, save and spend wisely begins in early elementary school.

Ramesh.  (2014, December 1). Spreadsheets for kids.  TES.  Retrieved from https://www.tes.co.uk/teaching-resource/activities-for-introducing-spreadsheets-6038378

Aimed at ages 7 to 12, ten activities introduce entering formulae on spreadsheets, beginning with cell referencing before moving on to more complex formulae.

A PBS series of Webpage articles, Managing Money, gives a step-by-step program that helps teach upper elementary and middle school students how to manage their money.

Managing money: Spending and savings.  It’s My Life.  PBS Kids.  Castle Works. Retrieved from http://pbskids.org/itsmylife/money/managing/index.html

PBS Kids first defines “earnings” and then suggests that saving money is a way that children can buy things that they want but don’t yet have the money to purchase.

Managing money:  Needs vs. wants. (2005).  It’s My Life.  PBS Kids.  Castle Works.  Retrieved from http://pbskids.org/itsmylife/money/managing/article2.html

PBS Kids first explains the difference between needs and wants and then suggests that young readers make a list of their needs and wants, so they can set their money goals.

Paying kids an allowance for household chores helps them associate income with work.

Managing money: Set money goals. (2005).  It’s My Life. PBS Kids.  Castle Works. Retrieved from http://pbskids.org/itsmylife/money/managing/article3.html

PBS Kids clarifies the difference between short- and long-term  savings goals and then directs preteens to start a savings plan where they can set aside 25, 50, or 100 percent of their money from their weekly allowance and gifts, so they can purchase what they want to have in the future.

Managing money:   Expect expenses. (2005).  It’s My Life.  PBS Kids.  Castle Works.  Retrieved from http://pbskids.org/itsmylife/money/managing/article4.html

PBS Kids divides expenses into emergency expenses, such as a flat tire on a bike, and regular fixed expenses, like cell phone minutes and club dues.

Managing money:  Track your cash flow.  (2005).   It’s My Life.  PBS Kids.  Castle Works.  Retrieved from http://pbskids.org/itsmylife/money/managing/article5.html

PBS Kids explains how preteens can keep a cash flow journal with date, deposit, withdrawal and balance columns.

Managing money:  Create a budget.  (2005).  It’s My Life.  PBS Kids. Castle Works.  Retrieved from http://pbskids.org/itsmylife/money/managing/article6.html

PBS Kids furnishes a simplified weekly budget sheet template and directions that will fifth through seventh graders balance of their weekly income (allowance, earnings and gifts) and expenses.

Managing Money:  Making a savings plan.  (2005). It’s My Life.  PBS Kids.  Castle Works.  Retrieved from http://pbskids.org/itsmylife/money/managing/article7.html

After elementary school children establish a simple budget, they can save for short and long-term goals as well as put their money in a savings account where it earns interest. 

Managing Money: Bank It.  (2005).  It’s My Life.  PBS Kids.  Castle Works. Retrieved from http://pbskids.org/itsmylife/money/managing/article8.html

Opening a savings account introduces elementary school children to monthly statements and interest while keep the birthday and allowance money that they save less accessible and tempting then it would be at home.

Managing money: IMF money tips. (2005).  PBS Kids.  Castle Works.  Retrieved from http://pbskids.org/itsmylife/money/managing/article9.html

PBS counsels that kids follow this time-proven advice:

• Pay yourself first, setting aside savings for short- and long-term goals; 

• Skip the candy aisle, forgoing discretionary expenses;

• Become a Budget Brainiac, sticking with a realistic budget and keeping an accurate and up-to-date cash flow journal;

• Don’t even try to keep up with Britney [or the kid next door], buying only what they can afford. 

    Finally, PBS Kids warns that kids that they shouldn’t equate money with happiness.

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Leonard, Edward.  (n. d.).   Budgeting for Kids.  Franklin County Treasurer.  Retrieved from http://treasurer.franklincountyohio.gov/outreach-and-education/treasurer-tips/budgeting-for-kids#

Franklin County furnishes a budget sheet for kids for listing their income and expenses each week whereupon he suggests setting aside a percentage of their allowance for short-term goals, long-term goals and charity.

Parents need to take the time to teach their kids how to budget.

Miller, Victoria.   (2014).  How to teach budgeting to kids:  Budgeting tools for children.  How to Do Things.  Retrieved from http://www.howtodothings.com/finance-and-money/a2653-how-to-teach-budgeting-to-kids.html

Miller lists ways parents can teach budgeting to children:

1. Teach elementary-school children how to understand the relationship between work and money by giving them a weekly allowance in exchange for performing household chores.
2. A piggy bank teaches preschool and kindergarten children to save while elementary-school age children can graduate to putting their money in four jars labeled everyday spending, big-ticket items, long-term goals and charity [and/or tithing].
3. Open a savings account for each of your children, making sure that they deposit at least half of their birthday money in it.
4. Help children add up how long it will time for them to save their allowance for things they want.
5. Use a simplified spreadsheet to help older elementary school and middle school children keep up with their expenses.
6. Don’t buy children everything they want, but teach kids delayed gratification.
7. Set a good example by modeling saving and using coupons.

Teach very young children to save using a piggy bank.

Pant, Paula.  (2015).  Teaching kids to budget money.  About Money.   Retrieved from http://budgeting.about.com/od/teach_kids_budgeting/a/Teaching-Kids-To-Budget-Money.htm

Pant suggests that parents begin to teach children between age six and eight about budgeting by ensuring that they understand the relationship between money and work by paying them an age-appropriate allowance for doing chores around the house.  Then they should divide their allowance into three jars—saving, spending and sharing.  Each time they receive an allowance, they will then need to put some of it in each of the three jars.

Preteens and teens can graduate to their first weekly paper and pencil budget and finally to using spreadsheets to determine their monthly income and expenses while continuing to learn more about saving and investing in intermediate and long-term goals.

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Budgeting for Middle School &

High School Students

Guided, hands-on training is possibly the best way to teach teens how to budget.

Baldwin, Grant. (2009, April 12).  12 Things Every Teenager Needs to Know about Money (and How to Teach Them).  Total Candor.  Retrieved form http://totalcandor.com/blog/2009/04/teaching-teenagers-about-money/

After giving the first four of these tips (plus two),  provides links to other money savvy articles in a series entitled 12 Things Every Teenager Needs to Know about Money (and How to Teach Them) aimed at a high school audience:

1.  Living on a budget isn’t an option:  A teenage budget guides (and teaches) future decision making.
2. Start now with what you got:  Even when—or especially when--money is tight, teens should learn to stay on budget.
3. Do it on paper: When determining a teen’s budget, start out using pencil and paper instead an Excel spreadsheet.
4. Use the envelope system: Pay out as much money as possible in cash after parceling out what is available to spend in categories (gas, cell phone bill, entertainment and clothing).

------. (2015).  Don’t be a tightwad: Giver generously.  12 Things Every Teenager Needs to Know about Money (and How to Teach Them). Cashmoneylife.  Retrieved from http://cashmoneylife.com/dont-be-a-tightwad-give-generously/

------. (2009, April 15). The truth about earning a college degree.  12 Things Every Teenager Needs to Know about Money (and How to Teach Them).  The Digerati Life.  Retrieved from http://www.thedigeratilife.com/blog/index.php/2009/04/15/earn-college-degree/

------. (2015). There is more money than you realize for college. 12 Things Every Teenager Needs to Know about Money (and How to Teach Them).  Free from Broke.   Retrieved from http://freefrombroke.com/there-is-more-free-money-than-you-realize-for-college/

------. (2009, April 15).  Two words: Compound interest. 12 Things Every Teenager Needs to Know about Money (and How to Teach Them).  Poorer than you.  Retrieved from http://poorerthanyou.com/2009/04/15/12-things-every-teenager-needs-to-know-about-money-and-how-to-teach-them/

glblguy. (2009, April). Delay gratification to succeed.  Gather Little by Little.  12 Things Every Teenager Needs to Know about Money (and How to Teach Them). Retrieved from http://www.gatherlittlebylittle.com/2009/04/delayed-gratification-2/

Ning, David. (n. d. ).  Spend money based on need not want. 12 Things Every Teenager Needs to Know about Money (and How to Teach Them). Moneyning.  Retrieved from http://moneyning.com/money-management/12-things-every-teenager-needs-to-know-about-money/

Taylor, Phillip. (2015). Creditors will steal your lunch money. PT Money.  12 Things Every Teenager Needs to Know about Money and How to Teach Them.  Retrieved from http://ptmoney.com/credit-cards-for-teenagers/

Wang, Jim. (2015).  Money doesn’t grow on trees. Bargaineering. 12 Things Every Teenager Needs to Know about Money (and How to Teach Them). Retrieved from http://www.bargaineering.com/articles/money-doesnt-grow-on-trees.html

Edwards, Ben. (2015, April 15). Taxes are a necessary evil.  12 Things Every Teenager Needs to Know about Money (and How to Teach Them). Money Smart Life.  Retrieved from http://moneysmartlife.com/taxes-are-a-necessary-evil-in-life/

Vohwinkle, Jeremy. (2014). Do what you love, love what you do.  12 Things Every Teenager Needs to Know about Money and How to Teach Them.  GX: Generation X Finance.  Retrieved from http://genxfinance.com/do-what-you-love-love-what-you-do/

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Parents need to model managing money skills before teens leave for college.

Budgeting. (2015, January 8).  Youth Central.  Victorian Department of Health and Human Services. Retrieved from http://www.youthcentral.vic.gov.au/managing-money/saving-spending/budgeting

This Australian Website stresses that keeping track of income and expenses requires planning and sticking to to a budget, setting “realistic goals”, determining monthly living expenses, reducing expenses and increasing income.  

Budgeting guide for kids and teens. (2015).  Shopsleuth. Retrieved from http://www.shopsleuth.com/resources/budgeting-guide-for-kids-and-teens

Shopsleuth provides user-friendly links that introduce planning a budget backed up by budgeting games, managing money and teaching children to budget, thus proving that learning about how to manage personal financing can be entertaining!

Financial literacy for everyone.  (2015).  Practical Money Skills. Visa. Retrieved from https://www.practicalmoneyskills.com/foreducators/lesson_plans/

Visa provides lesson plans from preschool through college as well as special needs students, as well as games, videos, and resources. 

Financial security for tomorrow starts today. (2015).  The Mint.  Northwestern Mutual.  Retrieved from http://www.themint.org/index.html

The Mint helps children, teenagers, and their parents and teachers determine a budget, and when the time comes, balance a checking account, and along the way earn, save, spend, owe, track, give and safeguard their money wisely. 

 

Folger, Jean.  (2015). Teaching financial literacy to teens:  Budgeting.  Investopedia. http://www.investopedia.com/university/teaching-financial-literacy-teens/teaching-financial-literacy-teens-budgeting.asp

Keeping a realistic budget helps young consumers plan for future expenses, limit their spending and develop “lifelong money management skills” (Folger, 2015, para. 1).  Using a spreadsheet, middle, high school and college students can begin to balance their expenses and their monthly income.  Adhering to a set budget thus reinforces the economic principle of opportunity cost: A limited budget means that they will have to substitute some expenses in place of other expenses.

GiveMe20.com. (2013).  Savvy stuff.  Top 10 budgeting basics for teens. Money and Stuff.  Retrieved from http://www.moneyandstuff.info/budgetingbasics.html

This tip sheet offers teens and parents good advice: Record and categorize all expenses, budget monthly rather than weekly, create a wish list, balance needs and come up with ways to deal with budget shortfalls.

How to help teens manage their money. (n. d.).  Money Advice Service.  Retrieved from https://www.moneyadviceservice.org.uk/en/articles/how-to-help-teenagers-manage-their-money

According to this British Website, parents can help their teenage children manage their money by 1) giving them financial responsibility as they coach them on how to develop and stick to a budget, 2) being a good financial role model themselves and 3) helping teens manage their first salary.

Learning how to control discretionary spending is a major challenge for many teens.

Jaggernath, Julie. (2013, May 17).  Budget planning for kids and teens getting their first pay cheques.  Credit Counseling Society.  Retrieves from http://www.nomoredebts.org/blog/budgeting/teens/budget-planning-money-management-kids-teens-first-pay-cheque.html

Upon receiving a first pay check, teens need to learn how to read a paycheck.   Understanding the difference between net and gross income, and then planning a reasonable budget, they assume responsibility for their own discretionary expenses; for example, paying for their own entertainment and cell phone bills.  This means they should set short- and medium-term goals, open a savings account, so once they reach legal adulthood, they can open and wisely manage a checking account.

Lerner, Michele. (2013, March 5).  9 ways to teach teenagers about money.  Savings Center.  Daily Finance.  Retrieved from http://www.dailyfinance.com/2013/03/05/financial-literacy-teen-money-education/

Lerner advocates 1) using Web-based video games to teach financial planning, 2) putting preteens and teens on a monthly budget rather than paying them a weekly allowance, 3) offering saving incentives, 4) giving middle and high school students a separate clothing allowance, 5) starting in upper-elementary school, teaching children about thrift, 6) helping high school students research budget planning as well as encouraging high school  students to work part time, discussing college planning  in [the sophomore or junior year of] high school and warning all preteens and teens about identity theft.

Raising financially literate teens.  (n. d.). Mackenzie Investments.  Burnrate.ca.  Retrieved from http://www.totalwealthsolutions.ca/pdf/Raising_Financially_Literate_Teens.pdf

This discussion guide for parents and teens covers developing a weekly budget, realistically determining income and expenses, teaching teens about how to deal with big money decisions, encouraging good financial habits, investing wisely and dealing with credit cards and debt.

Santilli, Vanessa. (2011, December 19). Helping teens to budget for holiday spending.  Bankrate.  Retrieved from http://www.bankrate.com/brm/news/cc/dec11_teens_budget_gifts_a1can.asp

With the help of a parent, teens and older elementary school children can learn how to plan successfully for holiday spending by setting a realistic budget, earning some money of their own, opting for creative homemade gifts and wrappings and using a prepaid credit or gift card for their shopping.

Shatzman, Celia. (2015). Teach your teens financial responsibility.  Family Circle.  Meredith Corporation. Retrieved from http://www.familycircle.com/family-fun/money/teach-teens-financial-responsibility/

Preteens and teens need to learn how to accept personal financial responsibility shopping smart, developing their own weekly or monthly budget and budgeting their allowance money wisely. Online teaching games offer drill and practice that will help them better understand budgeting and financial planning. 

Children can learn smart shopping skills from mom.

Teaching your teen about money (2015).  360 Degrees of Financial Literacy.  Retrieved from http://www.360financialliteracy.org/Topics/Family-Financial-Planning/How-to-Talk-to-Your-Children-About-Money/Teaching-your-teen-about-money

The American Institute of CPAs stresses that the necessity of teens becoming financially independent. This process entails learning how to handle earnings from work, developing a monthly budget, saving for the future, and upon heading for college, understanding how to use credit cards wisely.

Teaching your teen how to budget. (2014, May 29).  Intuit Quicken.  Retrieved from https://quicken.intuit.com/support/help/money-and-family/teaching-your-teen-how-to-budget/INF26358.html

Teaching middle school and high school students how to budget requires parents to set a good example themselves, involves teens in family spending decisions, forces them to budget their allowance and part-time earnings and helps them understand the benefits of investing through Roth IRAs and 401 K’s.

Teens and money. (2009).  Balance Track.  Retrieved from http://www.balancetrack.org/teensandmoney/index.html

Responsibly managing one’s own finances means setting short-, mid- and long-term achievable goals and then budgeting money income—a process that can begin as early as middle school.  This Website helps teens plan a budget, open and add to a savings account, open a checking account upon turning 18 and then when the time comes, handle credit cards responsibly and start investing.

Teen budget worksheet. (2015).  Familyeducation.  Sandbox Networks, Inc.  Retrieved from http://printables.familyeducation.com/teen/money-management/57920.html

Adapt this budget worksheet as a model for a starter budget for middle school and high school students.

Teens and money. (2015).  SaveAndInvest.org. FINRA Investor Education Foundation.  Retrieved from http://www.saveandinvest.org/FinancialBasics/Teens/

Taylor and Taylor publishing videos furnish videos on building an emergency savings fund, breaking even, compounding interest, credit cards, budgeting, buying a car, and moving out as well as introducing teens to economic concepts by playing video games.  Additionally, SaveandInvest.org provides online resources for teachers on interest, cost of living, qualifying for the job market, credit scores, and credit cards, opportunity cost, the true cost of owning a car, debt elimination, emergency funds, balancing a budget, growing money and NEFE’s High School Financial Planning Program.  

Thompson, Van. (2015).  Monthly budget planning for teens.  Opposing Views.  Retrieved from http://people.opposingviews.com/monthly-budget-planning-teens-1138.html

Middle and high school students who learn how to budget save themselves financial stress later in life.  Their budget should include required and discretionary expenses and savings (at least 10 percent). Furthermore, they also need to learn how to adjust their budget by cutting back on discretionary expenses or by earning more of their own money rather than just receiving a no strings attached allowance.

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Wells Fargo and Bank of America, as well as other U. S. banks and financial institutions, now have teens’ checking accounts that allow parents to review account activity at any time, move money from their own accounts to their child’s account, and set daily limits on debit card purchases and withdrawals from ATMs. Teens still in high school and their parents should also investigate no service fees or minimum balance saving accounts and education savings plans.

See:

Geffer, Marcie.  (2012, January 12).  The skinny on checking accounts for teens.  Lifestyle & Budget.  Fox Business.  Retrieved from http://www.foxbusiness.com/personal-finance/2012/01/11/skinny-on-checking-accounts-for-teens/

Most teen checking accounts offer reduced fees and no minimum account balance, but it still pays for teens to compare and contrast the services that banks offer to them (Geffer, 2012, January 12, para. 4-5).

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There’s a free app for that!

Mint:  Money management, budget, & personal finance: https://itunes.apple.com/us/app/mint.com-personal-finance/id300238550?mt=8