One of the most crucial responsibilities parents have when it comes to raising their children is to prepare them to handle the complexities of adult life. While teachers address the usual academic subjects like reading, mathematics, and writing in the classroom, school too often skips over economics and personal finance. So the responsibility falls upon parents to provide these essential lessons. The good news is that there are plenty of ways to help kids learn about finances, and they don't have to cost a lot of money. Here are five gift ideas to give your children a start in understanding financial security and money management.
Books about money. While monetary gifts may increase the size of a kid's bank account immediately, providing a solid financial education is worth much more in the long run. There's a wide range of books which can help kids learn not only about the value of money but how to grow and protect what they earn. Choose a light-hearted picture book or an easy-to-read introduction about money for the elementary school crowd. For kids in middle school and above, consider books on investing.
Games. Many games, both mainstream and more obscure, teach children (and adults) how to allocate resources to best achieve goals. This can be a fun way to subtly teach children about saving, budgeting, and investing in a low-stakes environment. Some games, such as The Allowance Game, Careers, and The Game of Life, teach money lessons directly using currency that can be spent or invested. Other (sometimes more engaging) games take an indirect approach by providing a limited resource that the player needs to allocate carefully in order to win. A few of these include Ticket to Ride, Settlers of Catan, and Stone Age, all of which have children’s versions.
The child’s college fund. Funding education can help a child understand the importance of preparing for the future and can be used as a way to explain the correlation between education and greater lifetime earnings. Family friends and relatives can make contributions to the child's 529 College Savings Plan or Coverdell Educational Savings Account (ESA). Each of these plans offers different benefits, so talk to a professional to see which one is right for you. Whichever you select, you can use the account to teach your child about the investment markets.
A prepaid debit card. Giving a child the power and responsibility to make his or her own financial choices and mistakes (when the stakes are low) can be a great learning opportunity. Consider providing some or all of their allowance on a prepaid debit card. Try to find one geared specifically to kids; they may have added features that allow parents to view a child's purchases, block purchases at certain stores, and recharge the card when it is getting low.
Shares of stock in a favorite company. While we typically recommend indexed mutual funds, you can introduce the stock market to a child by giving them shares in the company that makes his or her favorite product. It’s one of the few times you should consider using a paper stock certificate, so you have something tangible to give, representing the intangible value they now own. Not only will the child start their portfolio at a young age, but it is the perfect opportunity to sit down to have a meaningful discussion about how the market works and why investing is an integral part of financial planning. For adults who don't want to spend much money on stocks or who want an older child to gain real experience when it comes to buying and selling shares, there are several kid-friendly stock market simulators available online.
Whatever gifts you give, make sure that they make financial sense for you. Speaking to a financial professional is the best way to determine how and when to give monetary gifts to your children.