Money management: How to teach your daughters about spending, saving and investing
It’s never too early to teach your girls these good money habits
Our early blogs covered the basics of money management - the value of money and the differences between needs and wants. Once you’ve talked to your daughter about those two basic concepts, it’s time to teach her how to use her money wisely.
Some of us like to spend our cash wastefully, while other people spend more consciously. We want to teach our girls the power of using money wisely and how they can do it.
Here are three topics to build your girls' fiscal knowledge to understand the power their money holds.
Managing money with simple budgeting tools
Use the 3 Jars Concept
Let's start with a practical application on how to make the most use of money with the 3 Jars Concept: Save, Spend and Donate.
The 3 Jars Concept is a practical and tangible tool that teaches kids how to allocate their money.
Start with three empty jars, labeling them as Save, Spend and Donate. Divide the money your daughter earns among the three jars.
• The Spend Jar represents the discretionary money that your daughters can spend on whatever they want.
• The Save Jar represents the money your daughters want to save for future expenses such as a birthday party, an expensive item, or even for a vacation they’re dreaming of.
• Lastly, the Give Jar includes money your daughters will donate back to their community. It teaches your kids about the importance of giving back, serving the unprivileged, and the importance of being a good human.
Note that the three jars practice doesn't define the percentage of how much money should be allocated to each jar. Whatever amount you want your kids to allocate should be based on your judgment and discretion.
The main takeaway of this exercise is to ensure there is a good portion of money saved for the future, whether it is for a particular event or for emergencies that may arise unexpectedly, as we have seen with the pandemic.
The 3-jar game is also a very practical way to teach your daughter basic math skills and counting.
Give your daughter her own piggy bank
Another classic way to introduce the concept of managing money to kids is with a piggy bank.
The origin of a piggy bank actually goes back to the Middle Ages. Pigs have been a symbol of prosperity and wealth in some cultures, which is why we use piggy banks.
Piggy banks teach two fundamental values about money: Saving and earning interest.
Whenever you give your daughter an allowance, encourage them to save some of the money for future expenses. For every $10 they save in their piggy bank, add maybe $1 to their savings to introduce them to the concept of earning interest on the deposits.
Piggy banks are a fun way to encourage your daughters to save money and teach them about the banking system.
Open a savings account for your daughter
A formal way to introduce the concept of saving and budgeting is by opening a savings account for your daughter at your bank.
I think opening a savings account is the most realistic way to educate your kids about the roles banks play in our lives.
Whether they need to make a deposit, get a loan, learn about their credit scores, or invest in the market - the bank is the best place to get financial services and help.
Growing money with investments
It’s never too early to talk to your daughters about investing. Investing will help your daughters live abundant, comfortable lives so they don’t need to worry about money.
Essentially, investing is what differentiates the poor from the rich.
Teach your daughter about the stock market
One simple way to introduce the concept of investing is by educating your daughters about the stock market.
Netflix has a very simplified but educational documentary series called Explained. In Episode 7 of the show, they explain the U.S. stock market, how it works, and its implications for the economy using a Lemonade Stand as an easy-to-understand example.
Investing will teach your girls about growing wealth, what it means to be a shareholder, and how to develop a source of passive income.
Talk to your daughter about smart investing
Once she understands the basic concept of equity investing, teach her about the relationship of risk and reward, and the importance of financial diversification - the well known idiom, “Do not put all your eggs in one basket.”
These two concepts will be the basis of how your daughters will invest their money in the future.
Taking on more risk may provide a higher return, but also a higher chance of loss. There are ways to reduce your financial risk by diversifying your holdings.
Once you feel that your daughters are comfortable with the concepts of equities, why not purchase a stock to let them see how it changes over time?
Perhaps you can teach them about factors they need to consider before they purchase a stock, how to evaluate the performance of a stock over time and how a stock can provide value through growth and dividends.
Earning money from a stock portfolio brings me to my next concept - using money as another source of income.
Using money to create additional income streams
There are two types of income we can receive: Passive income and active income.
Active income is no longer enough to earn a living
We earn active income from the duties we perform in our professional jobs. Whether we are an accountant, an engineer, or a tutor - these are the things we work for because we need an income to survive.
Unfortunately, many people do not tell us that we should not solely depend on one source of income.
We live in a dynamic and constantly changing world - especially in times of crisis. It is essential to create other sources of income, whether actively or passively.
One way to generate income is through investing, which would be considered passive investing.
Investing could be purchasing a stock, a fixed income asset, or a real estate property.
• When investing in equity, you receive dividends
• With fixed income, you receive coupon payments
• With real estate, you receive rent from tenants
Perhaps these concepts may be challenging for your 10-year-old daughter, but remember, it is always better to start educating them early.
Many young people do not realize that the salaries they get from professional jobs are taxed at a much higher rate than their earnings from investment dividends.
Today, financial success and freedom means having multiple sources of income.
Encourage your daughter to monetize her passions
We have seen many families struggle financially during the coronavirus pandemic due to widespread layoffs and furloughs. Many people survived with the unemployment benefits from the government. Yet, some people kept getting richer and richer during the crisis.
You may want to teach your daughter about how she can become an entrepreneur.
Suppose she has a particular passion for playing instruments, writing poetry, or even a specific skill such as embroidery. In that case, she should start developing her ideas and bring them to life through an online business.
Perhaps you are an entrepreneur yourself and sell products on Etsy or Amazon. Why not ask your daughters to help you out and show them other ways they can generate income on their own?
The good thing about being a modern entrepreneur is that you don't always need to be somewhere physically. You can sell your products and services online and still make money. The fun thing about this is that you get to sell something you believe in and that you’re passionate about. So, why not share that with your little ones?
Educating your girls about anything at a young age is a priceless gift to give them.
We've touched on many great concepts around managing money, growing money, and using money to create additional income streams, but if your children are like mine, they want to have fun while they learn. One of the ways we turn financial education into fun is by using board games. Two of our favorite family games are Monopoly and Hotels. Both games teach kids about saving, investing, proper money management, and creating additional income streams. In these games, you start with an allocated amount of money, and the goal is to try and maximize the return on your money by buying real estate to generate income. Playing these kinds of board games allows you to teach your children about more complex money scenarios in an enjoyable way. It also helps your kids to relate the concepts from the games to real-life situations. For example, we recently purchased a property and took our children to see it. And before I could even tell them the plan for the property, my 10-year-old daughter says, "We can have people stay here and collect money like in the game monopoly." That comment made me smile because I knew our fun family game night had turned into a solid financial literacy lesson.
Another way to help cultivate the entrepreneurial spirit in children is to take them to or let them participate in kid entrepreneur showcases. Our family is excited about attending "Our Little Bosses" at Annapolis Town Center on October 3, from 12:00-2:00 pm. Here, you can purchase products from several showcased child-led businesses. This is an excellent way for kids to see and speak to young people who have started their own business and get inspired! It is never too early to be an entrepreneur.
“When women are educated, their countries become stronger and more prosperous.” - Michelle Obama
Recommended book:
A $mart Girl's Guide to Money: How to Make It, Save It, and Spend It by Nancy Holyoke
As the title suggests, A Smart Girls' Guide to Money is a simple book for young girls that teaches them all about money, how to make it, how to save it and how to earn it.
External links
https://www.bankrate.com/banking/savings/how-to-open-a-savings-account/
https://www.netflix.com/title/80216752
https://www.investopedia.com/terms/d/diversification.asp
https://www.nerdwallet.com/article/investing/how-to-buy-stocks
https://www.investopedia.com/articles/investing/011416/how-evaluate-stock-performance.asp
https://www.investopedia.com/terms/f/fixedincome.asp
https://www.nerdwallet.com/article/investing/5-ways-to-invest-in-real-estate
https://www.indeed.com/career-advice/finding-a-job/how-to-become-an-entrepreneur
https://www.amazon.com/Smart-Girls-Guide-Revised-Guides/dp/1609584074
About the authors: Bernita Bailey is the Truist Southern Maryland Market President. Urmi Hossain is a Pink Space Theory volunteer and founder of Savvy & Smart Her.