This post was created in partnership with T. Rowe Price.
You can google all the typical questions about teaching kids about personal finance: Allowance guidelines by age, save-spend-give jars, and other basic tools for teaching littles about stocks and compound interest. But how do you apply these lessons to real life?
Below, you will see how your kid’s cell phone can be a single source of a surprising number of financial lessons.
To prep yourself, an excellent, go-to resource is Moneyconfidentkids.com, a site that helps parents and teachers teach children of all ages about how money works, and how those kids can use money to reach their goals and be responsible citizens. The site, created by T. Rowe Price, is home to several critical money lessons dozen lessons, and each one comes with a printable lesson, worksheet, quiz, game or other tools to help parents, teachers, and other adults teach kids early the power of money.
- Track your spending
- Align your money to your values
- Create your own currency (genius!)
- Asset allocation
- Understanding risk management
Here is the secret sauce of Moneyconfidentkids.com: It’s really for the adult using it. Whether you teach your kids about money at home, or use the site’s tools in a classroom, Moneyconfidentkids.com gives adults tips and tricks for explaining these financial concepts for kids. Plus, you will likely learn something you didn’t (because, get real: how many adults feel comfortable explaining, much less practicing, asset allocation?! Not me!).
These guidelines and games are fantastic. However, the best teaching moments typically can’t be planned for.
In fact, a single purchase has the potential to teach children countless financial lessons both short- and long-term, complex and simple, concrete and abstract:
The cell phone.
When your kid, tween or teen complains about their cell phone
Whether their device is too slow, too old or has too little storage (my tween says her Android cannot hold more than 64 photos. Cry me a river, kid!), your child’s device may be a source of frustration — and vocal cries for an upgrade. This is a great opportunity to introduce money lessons:
Goals and budgets
While your kid’s wonky phone may inspire a goal of a new phone immediately, this is a great opportunity to help your child hit pause, create a thoughtful goal, and budget a financial roadmap to get there. Use the free printable budget worksheet at Moneyconfidentkids.com.
Perhaps your teen has enough money saved to buy a new phone now. If their savings are not in an interest-bearing account, use this moment to explain compound interest, and the cost of buying, vs. the cost of financing a new device.
Inflation and cost of living
Now is a good time to explain that because of inflation, a new phone in the future will likely be more expensive, and weave in the importance of investing money — even in a savings account — because a dollar today is not worth what a dollar will be able to buy in the future. This is also a good chance to explore the power advertising has on our desires and goals.
If your child is compelled to buy a phone in the moment, but does not have enough allowance money saved, you may look online for a phone purchase payment plan (or you might choose to act at the bank and loan her the money — with interest, of course), and use an online compound interest calculator to explain, in real sums, what the actual, out-of-pocket price will be.
Spend now vs later
Help your child weigh the pros and cons of buying a new phone now, versus later when their current device is truly dead. Explain that while she may be irritated now, all phones’ capacity for speed and battery life always declines, so that pain point will not be remedied permanently. If she spends her allowance/work money/savings on a new phone now in a fit of frustration, her savings may be depleted, which will limit her buying options in the future.
A phone device is also a chance to introduce the concept of lost opportunity cost, and risk management. Help your kid understand that savings spent on a new phone will no longer earn interest. Also, those funds will no longer be available for an emergency, much less a fun outing with their friends that may come up,or saving up for a car in the future. Help your kid balance immediate needs, short-term desire, and long-term goals — and understand how investing vehicles can help reach goals.
Learn more at Moneyconfidentkids.com.
Related post: How to teach your kids about money — at every age