For Financial Literacy, It's Never too Early

(MCT)—On occasion, I reach into my coin purse only to discover it holds no coins. My 2-year-old has the habit of taking my spare change and putting it in the “piggy.” Sometimes I wish I could keep my change, but then I think, it’s a small price to put my toddler on the road to financial literacy.

“Getting (children) to think about the discipline of saving is so important to how they will behave when they are adults,” says John Inhouse, managing director at Merrill Lynch. “It is never too early.” Teaching young children about money is part of Danny Kofke’s mission. The Jackson County teacher and author of two books spreads financial wisdom gained while supporting a family of four on his $43,000 yearly salary. In his forthcoming book, he specifically address the importance of teaching kids about money.

“When I saw all these college students with degrees in English literature who could only find a job at Starbucks … I was like, ‘We have to educate them better,’” Kofke said. “It pains me to see children as old as 16 or 17 who can’t balance a checkbook.” It doesn’t help that some adults can’t balance a checkbook either, but if there is an upside to the economic downturn, it is a growing awareness about money matters. “Now we are seeing a reversal where people are being smarter with money,” Kofke says. And passing those smarts on to our youngest citizens is crucial.

“When you are managing your money correctly, it opens up avenues and doors that allow you to live the life you are passionate about living,” Kofke says. “Managing money is all about freedom.” Here are some of his tips for setting up our children for financial success: Ages 3-5: Kofke created three jars for giving, saving and spending. When his daughters accomplished small tasks such as cleaning up their rooms or brushing their teeth, they earned a dollar and learned to put 10 percent in the give jar, 25 percent in the save jar and the rest in the spend jar.

They could use the money in the spend jar to buy things they wanted. Money in the give jar went to buy canned goods or stuffed animals to donate to people in need.

Age 6-9: As children get older, give them actual chores. Kofke and his wife taught their daughters to gather the trash on trash day and clean the bathroom. They earned a raise for their efforts. The lesson? Hard work earns greater rewards. His daughters still allocate money to their three jars, and the oldest recently had another money learning opportunity. Using money from her save jar, she deposited $130 into a local bank for three months and earned $50 in return.

Age 10-12: Children are old enough to think about ways to earn money beyond household chores, Kofke says. Encourage entrepreneurial spirits with small jobs like walking the neighbor’s dog or turning a hobby into income. Also consider matching their savings. “Wealthy people understand the concept of compound interest,” Kofke says.

Preteen years: Use this time when children are becoming more aware of themselves and their peers to show children they are not going to have it all. Just as some kids play football and others are in the band, some have more money than others, Kofke explains. “It is a good time to start talking to them about needs and wants.” Teenage years: At this age, it’s time to prep many kids for real jobs, Kofke say. “This is a golden opportunity to prepare them for a job interview. Teach them how to communicate well. And when they get a job, go over the first paycheck and discuss it with them,” he says. Explain why we pay taxes and help them understand the value of work.

You may consider giving your children a loan and have them sign a contract. “Charge them interest as they repay it. They will learn about borrowing and understand they are paying more money than they borrowed,” says Kofke.

College and beyond: Have an honest discussion about the consequences of student loan debt and make sound decisions together, Kofke says. Student loan debt can impact a young person for the rest of his or her life.

If young adults return home after college, charge them a nominal amount for rent. “Set it aside and when your child is ready to move out, maybe you can give them a down payment,” Kofke says. Jobs are harder to come by, but jobs are still out there. If they have to do something for six months to earn money, they just have to do it. “When parents shield kids from that, it does them a disservice,” Kofke says. “A lot of times we learn more from failure than if we always succeed.”