Financial Literacy for Kids

Every year I teach Junior Achievement classes in elementary schools. It does not matter how busy I am with 'teaching' business owners and lending professionals. I take time out because it is the right thing to do and I hope you will, too.

It is encouraging!

These kids get it. Sometime between the common sense of a ten year old and the adult years, something gets lost.

Example: The JA book defined a Resource as something people need. One of the students, Max, suggested it should define a Resource as something people need or want. I had to agree!

Planning a business...

The students were given about five minutes to come up with a business they might start:
  • Business name
  • Type of business
  • Good or service
  • Natural resources they might need
  • Human resources they might need
  • Capital resources they might need
They struggled with this assignment, particularly in the short time frame. When time was up I asked if it was hard. Their discouraged faces told the story. Yes, it was hard.

I told them it should be. That starting a business is hard. That there are a lot of questions to ask before they start. But that every business started just the way they started a few minutes ago, with an idea and a start on the questions.

Time for business owners to (re)ask questions...

Perhaps business owners (and maybe their lenders) should ask questions again. The disruption of the recession calls for it.
  • What business are they in?
  • What has changed for their customers and what has remained the same?
  • What resources do they need?
  • Who can help them answer the questions?
Some business owners never asked the questions in the first place. And most of us need to ask them again.

What questions would you add to the list?

In a Junior Achievement class with 1st graders, each student had two cards in front of them. One said 'Wants'. The other said 'Needs'.

Their instruction...when I hold up a poster they have to freeze for 3 seconds. I'll count to 3 and when they unfreeze, they pick up the card that shows if the item in the poster is a 'want' or a 'need'.


18 'Want'. 1 'Need'.
When I asked the little girl why it might be a need, she suggested that if she were blind and it was a seeing-eye puppy, she would need it.

Winter Coat:
18 'Need'. 1 'Want'.
When I asked the little boy why it might be a want instead of a need, he said he already had one winter coast. A second one would be a 'want'.

These kids understand wants and needs very well. When do they lose that understanding?

Consider teaching Junior Achievement classes in a school near you next year. They provide all the props, the lesson plans, the posters, the games. The teachers stay in the room and provide any support that you need.

As financial professionals, you could bring real-world examples to the material. Give it some thought. You'll feel good and do good at the same time! Please email me if you'd like to know more about how it works.

In the mood to be inspired? Read on. Not in the mood, scroll to the bottom of the post for some 'cost' definitions and why they are important.

If you have not yet presented a Junior Achievement class to school kids, you have been missing out. I was struck as I read an article aimed at business start-ups at how well the 7 year old kids had these concepts down.The article made the case for clearly understanding start-up costs versus continuing costs.

Wants or Needs

Picture this...
The first question:

Is this puppy a need or a want?

Most of the kids held up the 'want' card, but one held up the 'need' card. I had already explained that every answer was right, but I was curious.
Linda: "Joseph, you are right, of course. But I wonder why you chose 'need'?"
Joseph: "If I was blind and that was a seeing-eye puppy, it would be a need."

Just in case you think Joseph was a precocious child and unusual in his wisdom, let me adjust your assumptions. The next picture was a winter coat.
WinterCoat.pngThis time it was Amber who held up the 'want' card when everyone else selected 'need'.
Linda: "So, Amber, why would a winter coat be a want instead of a need?"
Amber: "Because I already have one. I needed the first one but I do not need a second one."

Start-up or ongoing costs...

I held up the 'puppy' poster again and asked what they thought they might need to budget to buy and keep this puppy. I explained start-up costs and ongoing costs.

Again, pretty sharp answers. In addition to what she could see in the poster, Sheila suggested we budget for veterinary bills. The students were pretty much in agreement until we came to the collar.

Most said it was start-up, but Jason pointed out that the puppy would grow and it would be too tight soon. Same for the 'puppy-house'.

7 year old kids get costs behave.

How costs behave is critical to budgeting...for a puppy or for a business.
  • Whether they are start-up or ongoing
  • Whether they are variable or fixed
  • Whether they are a need or a want

Are your business borrowers smarter than a 1st grader?

I'd settle for 'as smart'!

Cost definitions and why they matter

Here are a few cost analysis definitions and uses for your review:

  • Variable costs vary with activity level. Inventory, supplies, and contracted labor are good examples.
  • Fixed costs do not vary with activity level. Lease of space is a good example as long as the company does not get so big they need additional space. Because of that 'as long as', we talk about fixed costs in the relevant range...the likely activity range the business will encounter in the period we are considering.
  • Mixed costs have some of each. For example, at some shopping malls the lease amount is a fixed portion plus a percentage of revenue. If your borrower uses temporary help, then labor costs include the fixed portion for their regular employee wages plus the variable portion for the temp workers.
  • Cost of goods sold is the cost of items held for sale. That includes work-in-progress and raw materials if a manufacturing concern.
  • Gross margin is revenue minus cost of goods sold. The gross margin (sometimes called gross profit) is the amount left over after those direct costs available to cover general and operating costs and provide profit to the owners.
  • Contribution margin is revenue minus variable costs. It is not shown on a typical financial statement. The concept is critical, however, because if the price per item is dropped to spur sales activity, but dropped below the contribution margin, the business will lose money on each item sold. They may do this as a loss leader on purpose. But if they do this because they don't know any better, I think the 7 year old kids could help explain it.
When your borrower is projecting future growth, or a return to profitability after the 'great recession', steer your conversation towards a discussion of costs to get a feel for whether they understand how their business costs behave. The better they understand this, the more likely their projections will make sense.

MoneySmartKid.PNG What a hoot! If you want a quick video to play for a group of young people about money, you can't do better with a 2.5 minute clip than this.

Click here and then on 'Play' next to Miles Gage' name

Best quote: "If I take out a student loan, it will definitely be in my name and not my parents, since I will have more earning power to pay it back and they need to be focused on retirement."

Schoolchildren.jpgIf you have not had the privilege of spending time with 7, 8 and 9 year-olds lately, you are missing out! I taught the first two segments of the Junior Achievement Program for 2nd graders: Community.

We started with a colorful poster of a community, with people working and playing. We talked about the jobs in the poster and the jobs the students are thinking of as they grow up. We had a doctor, an animal protector, an athlete and a skate board dude in the group!

Then we experimented with unit production versus assembly line production. I am not sure at all how it was supposed to turn out, but our assembly line teams only produced one donut more in a two-minute experiment than our unit production teams.

Too bad they were paper donuts, we were all ready to eat some by the end.

1st and 2nd graders are energetic, interested, and ready to think about big things. And as the Junior Achievement volunteer, I was able to add my spin to things. I pointed out that some of the people doing 'jobs' might be business owners, others might work for a business or government, and others might be volunteers.

Next week is a segment on government workers. They'll all get paid and then have to pay taxes to help cover the costs of government. Wait until I get to put my spin on that!

'How many of you would like to start a business when you grow up?'

I did not get quite as many raised hands as I did for:
'How many of you would like to be rich?'

Then there was the young man who asked if you can get rich being a paleontologist?

As part of my Pigs Can F.L.Y. campaign, I visited Hansen Elementary School to meet the teachers and students where I'll be presenting the Junior Achievement curriculum this month...1st grade, 2nd grade and 5th grade. It is truly a gas to be back in school.

If you have not yet taught a Junior Achievement program in school, take a look. You almost don't need to know anything about teaching kids or financial literacy and business...the curriculum is all laid out and they have great activities. The teachers are excited.

This year is almost gone, but consider a new *school* year's resolution to teach a JA class next year! I'll report back after my first day!

School.JPGContinuing the report from the Money WI$E Women Conference in February, Number Four in our 'short list' of influences on our kids sense of money is what they learn, and don't learn, at school.

I don't know about your state, but in Washington State the "No child left behind" effort has lead to serious testing to see if the kids are doing well. Sounded good, but the unintended consequence is teachers who are very test-focused. Anything that is critically important but will not impact their test scores has trouble getting traction.

Strategy 1: As long as you can, influence the kids your kids hang around. Your kids are learning from friends and the families of friends about conspicuous consumption. About having the very latest toys and gadgets, without saving up for it first. And once they are into high school, about getting a job to have a car and then having to work a lot of hours just to cover insurance and the ever-greater costs of gasoline.

Strategy 2: Gently use the challenges your kid's friends (and their families) as object lessons. You have to be careful here, but sometimes the teachable moments come from close at hand.

Strategy 3: Volunteer to teach a Junior Achievement or like program in a nearby school.

If you are able to do so, volunteer to teach a session at your school. Junior Achievement has some great programs that are easy to teach. And if you are talking about grades 1-3, absolutely any adult that enjoys young kids could teach this.

By volunteering, you take the heat off the teachers to develop or find curriculum.

Strategy 4: And if you are not ready to volunteer yourself, perhaps you can contact your bank, credit union, CPA firm or stock brokerage and ask for someone to come teach at the school.

The third major influence on how kids learn about money that we came up with at the conference on MoneyWI$E Women was the media. We threw into that bucket TV, Internet, Video games and Computer access in general.

Strategy 1: Get rid of or reduce access to television
Few in the room would go quite as far as my husband and I did in 1994 when our kids were 10 and 13. We got rid of the television. Really!

Well, we kept the set and hooked it up to a VCR and later a DVD player. We rent movies and watch them. But no TV. We did not like what was on it, often. I know, I know...we are missing all the education stuff on NOVA and the History channel. And I agree that is a loss.

That said, even when we were watching a show we thought was a good one, the commercials for the movie of the week (subject murder, rape, incest, natural disaster, criminal activities) would intrude.

Heck, just look at the most popular shows as I write this: CSI Criminal Investigation, Law and Order, and a whole host of reality shows that often substitute for a real life. YIKES! I know I just lost some of you who love to watch Survivor, or the Biggest Loser, or _______(substitute the name of the show you make sure you don't miss).

I guess that is my point. It is perfectly okay with me if adults get hooked on shows...their choice. But when kids get hooked on shows, and they have negative and scary messages about life and about money, maybe it is not the healthiest way for them to spend their time.

Later in the day, a woman shared with me a factoid she had stumbled across. If you add up all the TV that most people watch, they are spending a month a year watching TV. When we decided that a full half of that is often commercials of some sort, that means we are giving up two weeks or more of our life every year to watch advertisements.

Strategy 2: No TV during dinner. No rushing dinner to have enough time for TV.

Family dinner time is a premier time to reinforce all the lessons kids are learning from you, be it about money or conflict or listening or community. Parents that are very connected to their kids because they spend an hour each evening rehashing the day or even talking about current events (as the kids are older)  will have a great deal more influence than those whose lives get too busy to fit together-time in.

Strategy 3: Prohibit or carefully control time on video games, Gameboys, XBoxes and the like.
These activities are addictive. And by themselves may not be a bad thing, but are competing for time spent on homework, unstructured creative play (Legos, blocks when younger), reading, socializing with the family or others.

If you are thinking they'll never go for it...because all their friends have it. All I can say is if you are the parents, you are the parents. Not all your parental decisions will be popular. As our kids got into the teen years, for those decisions they really chaffed at, we reminded them that in X years, they'd be able to make all those choices for themselves.

Strategy 4: For younger kids put the internet-connected computer in the family area.

You'll have better control, but also a better sense of what is catching the kids interest, if they are in your environment when they are using the computer.

These are strategies the 30 women in the room came up with. More?

At the session on educating kids about money at the MONEYWI$E Women Conference, the second pick for how kids learn about money was their friends and peers.

Strategy 1: When kids are younger, engage them in activities that will lead to peer groups you prefer.

This may be 4-H or Boys and Girls Club. It can include encouraging they start with an instrument so they'll be drawn toward band or orchestra in high school. It can also include community soccer or T-ball at a young age. If you are part of a community of worship, how about the youth group?

Strategy 2: As kids get older, continue to encourage and make transportation available if possible for the activities that pair them with other kids with the values you are trying to reinforce.

Let's face it. As children get older, we have less and less decision-making over who they choose as friends and mentors. At the same time, those friends and mentors have greater influence.

It stands to reason that by then, the foundation needs to be set. That does not mean the game is over. Continue to nudge in the right direction. Sometimes, you can even use some of the choices their peers are making as an object lesson without putting down their friend.

Strategy 3: Decisions about TV, Computer and Video games

That one I'll share in the next post, because TV, Computer and Video games came in third as a significant source for how kids learn about money.

At the MONEYWI$E Women Conference our session on 'Teaching kids about money' listed Parents and other family members as the number one way kids learn.

So...what to do about that.

How effective is it when a parent tells kids to save, to plan, to budget...and then it is patently obvious that the parents don't? Does this sound familiar? "Do as I say, not as I do."

Strategy 1: Model the behavior you want to teach the children in your life.

Does that really work, though, especially with young people, if they don't know you are doing it? Do young children realize their parents are going without the new plasma TV to save up for the family vacation this summer? Are they aware that their parents are putting money aside into savings each month so that when the yearly life insurance bill or the semi-annual car insurance hits they are not scrambling?

Strategy 2: Share your financial story with the children in your life.

I know, many parents try to shield their children from bad news, and if finances are tight they don't want the kids to worry. Trust me, they are likely worrying. And possibly about the wrong things. They sense the stress and worry in you. Sharing the situation and enlisting their help not only takes some of the worry of the unknown away, but it teaches them that the family pulls together in difficult times.

So what happens if yours is a bit of a rags to riches story, and by the time your kids are late teens and forming their own habits, they only see you as a financial success? They don't remember when you were making a choice between going to the dentist and letting them go to the band field trip. Or maybe you never told them.

Strategy 3: Share family stories of overcoming adversity.

This could be your immediate family stories. It also could be aunts or uncles or grandparents. My 23 year old came home last week having suffered a setback in his business. It helped him to hear, again, about the time his Dad and I had a 'spec' house on the market for 22 months. We did not go to the dentist, ate out of the garden, and barely scraped by. When he hears those stories and sees that we are doing well now, it helps him see his current situation as temporary...something he can solve.

Tell, Model, Share the story. One more strategy we came up with:
Strategy 4: Take action in the community.

When a parent feels so strongly about something that they take action on a bigger scale than their family, the child really gets the message that this is important. Some parents are active in the environment, in the arts, in kids' sports. Admittedly, with young children, parents are often paddling as fast as they can to keep food on the table, do their jobs and provide a nurturing environment at home.

We talked about finding a way to bring the message of financial literacy to more than the children in your immediate circle.

I had Junior Achievement kits for 1st, 2nd and 5th grade with me since I'll be volunteering at Hansen Elementary to teach 5 30-minute segments in the next six weeks. They are AMAZING kits with great tools to teach. Any adult could teach the younger grades with no more training than the 1 1/2 hour session with the JA coordinator.


What strategies have you used with the children in your life?

What worked with you when you were a child?