Recently, I was asked what topics I would choose if a children’s book about money was in my future. Of course, the first thing that came to mind was teaching all humans under the age of 18 to save 10% of all of their wages in a retirement account for the rest of their lives….but then reality set in. Kids don’t know what retirement is, because they don’t really know what work is. Sure, they know that the adults in their life go to “work” and earn money, but the concept of trading your time for wages is a bit over their heads. It’s why I hear parents complain a lot that their kids don’t understand the value of things. Of course they don’t, they have never worked so they have no point of reference when they do spend!
But when I really thought about this topic, what would be the one major concept I would teach young kids about money, a clear winner presented itself. No, it’s not to save for retirement (rats). No, it’s not to invest in stocks. Or real estate or precious metals. No, it’s not even about taxes. I would eventually get to all these topics, but not first. The first concept I would like humans everywhere to understand is the value of numbers.
And I’d like them to know this before they even learn to read.
The value of numbers is the concept of positive numbers, negative numbers and the number zero (which is the absence of a positive or a negative number). This fundamental concept is what we base budgeting on (or “balancing your checkbook” if you want to roll old school). And in my professional opinion, it is the building block of personal finance. And yes, your preschooler can learn this.
For example, when my daughter was young, we gave her two hours of screen time a day. She understood this concept of time, but without knowing how to read a clock. The way my 4-year-old thought about her screen time was this:
Screen time equals:
One movie (1.5 hours) and one TV show (half hour)
Four TV shows (each a half hour)
One car ride of endless cartoons to the cottage (2 hours)
What she was doing in her own way was budgeting her time. She was adding her favorite television entertainment and linking them together so she knew how much she could use in one day (positive numbers). If she had bad behavior, she would lose a half hour of screen time (negative numbers) and every day she started over a fresh slate (zero – none used and none taken away). Amazing how smart 4-year-olds can be!
If we nurture this understanding of numbers in young children, it is easy to slide money into the situation. For example: her grandfather gives her ten dollars. She wants toys, video game tokens and an ice cream when the music starts to play outside. We don’t tear the money into pieces to represent every purchase, so we make an easy budget:
+$10.00 gift (wages for being adorable)
-$1.00 video game tokens
-$5.00 ice cream bar
-$4.00 to spend on toy(s)
0 left
Brilliant! We started with zero. Had positive numbers. Had negative numbers. Ended with zero. The girl will be an accountant when she grows up!
Of course, our 4-year-old want all the tokens, all the toys and ice cream for herself and all the neighbors…so as parents, we make another budget to show her the problem with her thinking:
+$10.00 gift (wages for brushing her teeth all week)
-$5.00 video game tokens
-$20.00 ice cream bars
-$10.00 to spend on toy(s)
-$25 left
In this second budget, we showed what happens when we spend more than we earn…..thus having negative numbers/cash flow/money. This negative number and has consequences, meaning we do not have enough money to buy all the things we desire. (This can also be illustrated as debt if we choose to go that route, but debt is pretty complicated for preschoolers.)
Let’s do one more budget, to illustrate another lesson of budgeting for a way to also save for the future:
+$10.00 gift (wages for picking up her toys every night)
-$1.00 video game tokens
-$5.00 ice cream bar
-$2.00 to spend on toy
+$2 left
In this third budget, we showed what happens when we spend less than we earn…. thus having positive numbers/cash flow/money. This positive number has consequences, meaning we now have extra money to save for our future spending. She can buy more tokens next week or a more expensive toy. (This can also be illustrated as retirement savings, tithing or saving up to pay cash for large purchases).
And you want to know what’s funny about this? The preschooler will understand. They are probably already doing this with rationing desserts or bribing their siblings to do their chores for them. But many adults do not.
This basic concept of spending less than you earn is a common problem that I have seen when working with adults. As children, they were taught the concepts of “we can’t afford it” or “I deserve it” and “money doesn’t grow on trees” as the foundation of budgeting. While these statements may be true, they don’t teach the lessons of the value of numbers which is the principal concept of budgeting. Adults age into working with money with the knowledge taught by their parents, of which very few actually talked about money at all. And we wonder why our teenagers don’t know the value of money, they were never taught. And we wonder why adults have problems budgeting, they were never taught. And we wonder why people often say “kids should be learning the basics of money and investing in school”…. I feel this is the parents asking a professional to teach the concepts, because many don’t know the basics themselves.
I have spent thirty years teaching adults about money. Maybe I will write this children’s book and see if future financial planners can just teach their clients about investing. The thought being if adults learned the foundations of personal finance from a very young age, they would grow up with a head start with finances. When budgeting is successful, they have an easier time avoiding debt and saving for retirement. It also prevents the trauma handed down through the generations surrounding money and sets young people up for success to learn about taxes, mortgages and insurance (still all basic math concepts).
The next time you have the opportunity to talk to a child, help teach them the value of numbers. No matter if the child is 4, 14 or 24…. encourage them to see finances as numbers, not as emotions. And encourage them to save for their future. It looks pretty positive to me.
Kimberly Enders CFP® CWS® CERTIFIED FINANCIAL PLANNER™
Enders Wealth Management
37800 Van Dyke Ave, Suite 125
Sterling Heights MI 48312
www.enderswm.com
#kimenderscfp
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