Financial literacy should begin at an early age. When I was in high school we had an accounting course. At the time we did not have excel but still had a computer spreadsheet program. We learned both the ledger book and the computer method for entering in finances and figuring out a balance sheet.

I learned how to input the numbers, what the notations meant, and the basic fundamentals of accounting. What I did not learn was how to budget, what categories to actually use, and how to keep track of all your spending habits.

This came later in life after I filed for bankruptcy and was already in financial ruin. I only blame myself for not learning about finances and budgeting when I had the chance. I had a college degree, came from a fairly middle-class household, and had brothers that earned business and finance degrees.

However, I decided I was not going to let my daughter make the same mistakes that I had and hopefully be in a much better position before even going to college.

First Job, First Payday

Last year she found a job with the school district. A job that paid more than the minimum wage and paid her monthly. Being paid monthly can help people budget since they have to figure out how to stretch their income over the course of the entire month. This is exactly how a budget should work but many of us do not follow the same behavior.

Of course, when she received her first paycheck she was already online buying new clothing and music and was not looking at a real budget. I completely understand the urge, that first paycheck for anyone is an amazing feeling and we just want to indulge so I let her be. I did remind her to think about saving some money and was met with an I know, dad.

When the pandemic hit she was told that her job would probably not continue but she would be paid until the end of the school year. Since she is still living at home I was not worried about her not having any money for the summer so I did not ask her about her savings.

A few days later she was telling me about the $100 a month that she has been putting aside from each paycheck into her savings account and now had over $1000. I could not be more proud of her. I do not want her to struggle so I told her that we should sit down and truly go over financial management and budgeting.

A Plan For the Future

She has begun to make plans for the future. She wants to move to Korea at some point and has been doing research on where to live and how much it is going to cost. We are also planning to travel when things settle down and I want her to be able to splurge without worrying about money.

When is the best time to teach your children about finances? As soon as you can. Start with making a basic budget. Since they will most likely still be living with you start with simple categories:

Clothing
Entertainment
Food
Savings

Hopefully, we all know how to build a basic budget and with minimal expenses, the emphasis should be to save at least 10 percent of their salary and fill out the other categories with what is leftover.

What is Compounding Interest

It is also important to teach them about compounding interest. Most kids are these days are tech-savvy so you can show them what it means with a simple compound interest calculator. Show them that their money can work for them. We all were taught that at some point, but some of us listened while most just decided that it did not mean anything at the time.

Imagine if you could go back 30 years and tell your young self to put 10 percent of your salary in interest-bearing savings account every paycheck and explain how much they would have now we would all be looking at retiring young.

At just 0.05% return and an initial deposit of $1000 with $250 contributions in 30 years that $1000 would be close to $100k. Increasing the contributions each year by 3% and factoring in regular pay raises and promotions and this amount could easily be doubled.

Put a dollar in a mason jar, and then each day add a quarter, by the end of the week you will have $2.75. Explain that each day is the interest you are putting in there and that they only really earned the first dollar. Hopefully they will get a basic understanding of how interest works.

Never Too Soon To Talk Retirement

That same amount invested could be enough to retire on, and that is something that we are all striving for. We could all learn from this and maybe encourage our children to save more.

You not only want to teach them about saving but also about debt. I had my first credit card in college but never spent any time learning about how bad paying interest was until it was too late.

There are so many people struggling with financial literacy and starting early would make an incredible difference to some of their lives.

---