Financial. Literacy. The Millionaire Kid$ Club. Book Thursday

My parents thought it important for us to understand money. We started getting allowances in third grade and discussed stocks my father was considering at the dinner table. By the time we were all 12, we were earning our own money through baby-sitting and delivering newspapers and no longer needed an allowance.

Money Savvy Pig

When I was a Freshman in college, I was given a year’s grace to get used to college before having to earn my own spending money and buy my own books. Unused to all the free time you have between classes in college, I got a job after six weeks.

And, yet. They did not explain to us the various ways money could be used. I thought it enough if I could pay bills and have a little extra. That approach worked when jobs were steady and I had no life-threatening illnesses to deal with.

For the more likely case that a paycheck is not steady, I recommend that parents or grandparents teach elementary school children early what Susan Beacham, who specializes in teaching financial literacy to children, suggests. Divide your money into four categories: Save, Spend, Donate, Invest.

Children will likely divide their money equally into these four categories, and, after all, most of their financial requirements are already met by their parents, so this is a good place to start. Adults may prefer a 10/70/10/10 split when making their own budgets and children can be led to this understanding once they have established the habit of saving, donating and investing.

I read recently that if a child between the ages of 8 and 13 invests $50 a year in dividend-bearing stocks, and reinvests all the dividends, they will have $1 million at the age of 65. That’s a lesson in compounding that would serve a child well to understand.

The Millionaire Kid$ Club book is the first in a series of books on financial literacy for elementary school children, co-authored by a former banker, investment manager and elementary school teacher, Susan Beacham. You can buy it through amazon.com here.

Beacham’s Money Savvy Pig web site explains the reasoning behind the four-slot pigs. Set aside money to save, spend, donate, invest. Financial advisors routinely tell us that it is not nearly as important what you make as what you save and invest of what you make, because, over time, you can build an income independent of your paycheck that will buffer you if you lose your paycheck.

You can find videos with tips for teaching children about money and buy a Money-Savvy Pig at Beacham’s web site here.

Beacham offers 5 tips for introducing children to money:

Explain that everyone has choices about what we do with our money
Set goals for how you want to spend your money
Pay yourself first by adding to savings before spending
Start an allowance for some fixed expense your child has, like school lunch
Model the behavior you want your children to have.

If you are planning a trip to Disney Park in Florida, you might consider including a stop at The Great Piggy Bank Adventure, an interactive financial literacy game at Epcot Center, that teaches the importance of savings versus spending, the effect of inflation, and relative risks for different uses of money and the importance of diversification. You can see an overview of the game here.

Finally, if you want to introduce children to an easy way to make a little money, they can sell used items on ebay or used books at amazon.com. Amazon. com provides an easy overview of how to get started here.

A word of caution about selling on amazon. Many used books are selling through other sellers for one penny. If you can cover postage (media mail is the cheapest) and the cost of the packaging you mail a book in (brown paper bags work), and you are selling books you already own, then you can make a little money on each sale because amazon charges buyers a fixed shipping and handling fee that should cover your expenses plus a little.

If you are selling books that are less well-known than those selling for a penny, you can make a little more with each sale. The real value is in learning an easy way to sell online and converting books you may no longer care about to cash.

Grandparents. You may find that your grandchildren can teach you online sales. But, you are teaching them the power and value of the money they earn and save. You understand that you cannot depend on earning tomorrow what you are earning today. Help them understand how to prepare.

Garage sales in the twenty-first century are global. The importance of financial literacy has not changed. For their next birthday, buy them a copy of the Millionaire Kid$ Club book and read it to them.