Teaching Your Kids Financial Literacy Without Going Broke Yourself

This is a guest post from Geoff Williams of CardRatings.com

This month is National Financial Literacy Month, so say the people who make up the months. I think it’s a good argument that every month should be Financial Literacy Month, but, hey, April is probably as good a time as any for parents to think about what they’re teaching their children about how to manage their money.

Obviously, understanding how savings accounts and credit cards work should be near the top of the list, but it’s good for young kids to be exposed to the wonders of mortgages, rent, auto loans and the whole gamut.

Mostly, though, children need to learn how money works and understand where their money goes. It might not be a bad idea for adults to get a refresher course, as well.

Entrepreneur Day

I was reminded of that last week. My oldest daughter, Isabelle, 10, had Entrepreneur Day at her school. It’s a major project for the fourth graders. They were all tasked with making something and mass producing it to sell to the third- and fourth-graders in their school. Isabelle made key chains and returned from the school bus last Friday to tell me that she had made $31.

That’s right, she earned $31 at her public school, money she was allowed to keep; it’s a great program. And then at a family function we had that night, she unloaded a few more key chains on her eight-year-old sister Lorelei, an uncle and aunt, and her grandparents, and then proudly informed me after dinner that she made a grand total of $40.

So she wanted, on the way home, to stop at a store and buy a Wii game that cost $50, and pleased with her entrepreneurial efforts, I happily agreed to pay the extra $10. Besides, she’s a good kid.

The morning after

The next morning when we settled up, Isabelle gave me a plastic bag with $40 in it, and then I went to a cash box that I had given her on that Friday morning, so she could make change during her selling spree. When I gave it to her, the cash box had $25 in it. Except now, the $25 was nowhere to be seen.

“Oh, that was part of the $40,” Isabelle told me when I asked her about it.

“But then you didn’t make $40,” I stammered, suddenly realizing I had been unintentionally snookered. “You made $15. So the Wii game, that I thought I was only paying $10 for, I actually paid $35 for. Actually, the game came to around $53, with the tax. So you paid $15, and I paid $38. You made out like a bandit.”

The true cost

Then I started looking at my daughter’s receipts and realized the bandit analogy was more appropriate than I realized. That’s right — I was robbed. I had spent $11 on key chain supplies for Isabelle, meaning I had actually spent a total of $49. But a few hours later, when I was sharing this anecdote with my soon-to-be ex-wife, she reminded me that my $11 wasn’t the only expense. She had also taken $27 out of my bank account for an initial wave of materials Isabelle felt she needed to make her key chains. This brought my total investment in my daughter’s budding jewelry business to $76.

Bottom line: My daughter made a profit — a Wii game — and me? Not so much. Actually, I changed my mind about it being important for parents to teach kids about money. My kids are doing just fine, and in fact I may ask one of them for a loan soon. I think I’m the one who may need more financial education.