Third-graders and the financial bailout

My third-grader took a quick look at the financial bailout headline in the newspaper this morning and quickly gave up trying to understand it.

I don’t blame her. I feel the same way.

It's hard to fathom what is going on and what to think or do about it. But there is something useful we can do in the here and now: Teach our third-graders and the rest of our kids about money and finances so they can make good decisions later.

Here are three ideas, suitable for a range of ages:

1. For young kids, introduce the idea of a budget. There are lots of things we want to buy, but we only have a certain amount of money. How do we decide what is most important to buy? How much should we save and for what? How much should we give away and to whom?

2. Talk to late elementary and middle school children about borrowing. Explain that people sometimes borrow money to be able to buy things that they would otherwise not be able to afford. Introduce the ideas of interest and risk. How much should people borrow? What happens if you can't repay the loan? Kids are fascinated by all this.

3. Ask your child's school what they're doing to develop students' financial literacy. Many states are now including financial literacy in state standards. A suggestion you could bring to your child's elementary or middle school: Bizworld  is a terrific program for teaching entrepreneurship and finance. I've seen the kids who've been in the program present their ideas for businesses to successful entrepreneurs in their community and it gets everyone excited!

One more idea: Perhaps you can help your child (and yourself) better understand what $700 billion is by asking them to figure out how many weeks/years/centuries of their earnings/allowance it would take to save $700 billion. (Have your child leave a comment on my blog with the answer!)

Finally, for more tips on talking to your child about financial literacy, check these GreatSchools articles:

Smart Money: Raising a Financially Literate Child

From Our Readers: Raising a Financially Savvy Child

Comments

[Suzie]

As I have been trying to understand the financial crisis myself, I am discussing a lot of the basic ideas of value, worth, saving, lending, owing...with my 7 and 8-year old children.

I applied these concepts to their real life situation collecting of cards and stickers for their albums. These turned out to be very tangeable models; even more realistic to their universe than money.

For instance, we talked about "naked-short selling". Their grandmother had promised to give them x-number of packets of cards. However, she wasn't able to buy them because stores in our small town had sold out. Even without the cards, my kids started trading what they might potentially get. They were trading things that they didn't own yet. Things got a little tense between them.

This lead to an interesting conversation about trust and credibility in lending. All in all, it was ok, because it was Grandma making the promises and the Fed (Mom and Dad) bailed out the situation by going to a neighboring town to get more cards.

I love your site. Thanks for helping me keep involved in my kids learning.

[Ben]

As a child, my parents started me on saving a portion of any money I received. My allowance, gifts, etc -- I saved 10% of the money in two jars -- one for my personal savings and one for donations.

It was a great little weekly math and it made me realize that saving my money didn't have to be a huge sacrifice to my candy aisle lifestyle.

[chrispix]

There's a great piggy bank my nephew has, with 4 sections: save, spend, invest, donate. It's a great way to talk to kids about the different ways we use money. We plan on getting my 5-year-old one this year, to start introducing the concepts to her.

One thing my dad did for me was to purchase one share of Exxon stock in a DRIP when I was an infant. When I was a teenager, it provided a great opportunity for him to teach me how to read the stock tables, how dividends work, capital gains, etc.

I've followed his lead by shifting some small holdings of my own into custodial accounts for each of my kids. Hopefully they'll have as much fun following their progress as I did.