I recently came across the article, “Three Smart Ways to Teach Kids About Money from a Former Goldman Banker.” http://www.businessinsider.com/daughter-of-former-goldman-banker-asks-for-allowance-2013-10 As in, Goldman Sachs – my first thought was, “oh, this will be good.” The article didn’t disappoint. First, the author decides to introduce his eight-year-old to stock investing — before he introduces her to an allowance. He’s definitely got things in the wrong order here. Next, he talks about running a month-long compounding interest demonstration with said eight-year-old. Again, he does this instead of offering her an allowance. Finally, he concludes that he will give her an allowance – but it will be $17.45, and she won’t get it until the month is over. Meanwhile, the eight-year-old just wants an allowance, so she can buy some books at the book fair. As I was reading the article, I was thinking to myself, “This guy is standing in the way of his daughter’s progress.” What do I take away from this? It’s important to keep everything in perspective, and to take things in order. Your kids need your support in learning about money, but they need to learn it when they’re ready and in a natural progression:
- Learning the value of money, and the concept of saving for later
- Learning how to spend money
- Learning how to manage a small budget to make purchases later
- Learning how to manage a large budget, over an entire annual cycle
- Learning the concept of interest – both earned and paid – and how to make investments
Kids can learn all of this, and will excel at it – but they need your help, and more importantly, they need everything in the proper order, and in good time.