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How to Help Kids Have a Financially Healthy Life

How to Help Kids Have a Financially Healthy Life

One of the best gifts that we can give kids is financial knowledge. Becoming financially healthy at a young age can help kids avoid some of the financial mistakes that many of us have made (and that we’re still learning from).

For example, if we had known then, what we know now, the majority of us wouldn’t have so much debt (the average American has a total debt of $135K), we’d be better prepared to fund an emergency (less than 65% of Americans have $1,000 in savings) and we’d have more saved for retirement (52% of Americans have less than $10,000 saved for retirement).

Teaching kids the following key concepts can help them become adults who spend and save wisely (and may help you become a better spender and saver too).

Teaching Kids about Budgeting, Saving and Compound Interest.

Budgeting and saving money are the most important aspects of having a secure financial foundation. Depending on the age of your child or teen, there are many ways to teach this. Giving your child opportunities to earn money through chores so that they can begin to manage their own money is a great first step. Then, with apiggy bank or savings jar, they can watch their money accumulate. Another great way is to open a savings account at the credit union.

One key concept of saving is time. The longer money is saved, the more likely it is to grow – especially when there’s interest.

One fun way to demonstrate the power of saving and compound interest is toask, “Would you rather have $10,000 or a penny a day, doubled for 30 days?”

Starting with one penny, doubled for 30 days, totals over $10 Million!

Day 1 $0.0200 Day 11 $20.4800 Day 21 $20,971.5200
Day 2 $0.0400 Day 12 $40.9600 Day 22 $41,943.0400
Day 3 $0.0800 Day 13 $81.9200 Day 23 $83,886.0800
Day 4 $0.1600 Day 14 $163.8400 Day 24 $167,772.1600
Day 5 $0.3200 Day 15 $327.6800 Day 25 $335,544.3200
Day 6 $0.6400 Day 16 $655.3600 Day 26 $671,088.6400
Day 7 $1.2800 Day 17 $1,310.7200 Day 27 $1,342,177.2800
Day 8 $2.5600 Day 18 $2,621.4400 Day 28 $2,684,354.5600
Day 9 $5.1200 Day 19 $5,242.8800 Day 29 $5,368,709.1200
Day 10 $10.2400 Day 20 $10,485.7600 Day 30 $10,737,418.2400

Of course, no investment doubles daily, but this is a good way to explain the basic concept of compound interest, which allows the saver to earn interest on interest as opposed to just interest on principal (simple interest).

Teach Kids About Debt.

It’s important to steer your kids in the right direction by teaching them “good debt” vs. “bad debt.” Kids should be encouraged to live within their means. And, it’s important to explain interest. Just as compound interest helps some savings plans grow, it can also cause debt, such as credit cards, to increase.

Final thought…

One of the best ways to help kids become financially healthy is to lead by example. Be honest about the mistakes that you’ve made and use your own experiences as teaching opportunities to help train your child to be financially smart.