Business Acumen Starts at Home: Raising Financially Savvy Kids

Written by Annika Cushnie, CFP®, CIMA® on January 1, 2016

Part of your overall business and personal finance strategy should include teaching your children good money management. In some cases children may follow in your footsteps and take over your business; in other cases, they may forge a path of their own. Whatever path your children choose, you can prepare them for success in the business arena with some basic financial principles.

The Basics of Budgeting
Start by talking openly about finances and allowing children to gain experience with personal finances by managing their own money. Take them to the local bank to open a savings account and start giving them a weekly allowance. An allowance represents a regular income stream that can be used for giving, saving and spending. Then help your children set goals for each category and provide opportunities around the household for them to earn additional funds. Teach them to avoid succumbing to instant gratification by saving up for larger items that they appreciate. While your children will inevitably make mistakes, the basics of budgeting are introduced by forcing them to think about how much things cost, how to spend their money, and how to set and achieve goals.

As your children grow older and become more financially responsible, increase both their allowance and the items they must budget for, such as clothing. There is debate as to the efficacy of tying the allowance to household chores. Whether this is right for your children will depend on your own family dynamic.

Making a Profit
Encourage your children to further enhance their financial skills through forming a small business, such as a neighborhood cookie company or service. By running their own business, your children will gain valuable insight into the dynamics of business elements such as revenues, expenses, and profits/losses. Consider our example of a neighborhood cookie business. By taking your children with you to purchase ingredients and helping them bake and sell the cookies on their own, you can teach your child about cost of goods sold, labor, and marketing techniques. Allow them to be creative and have fun with posting advertisements, selling door-to-door, or opening sidewalk storefronts. Be sure to show your children how to calculate the profit or loss for their business and discuss ways for them to increase their profit margins by increasing sales or reducing expenses. Tackling these basic principles with your children now will provide a solid foundation for their future business endeavors.

Avoiding the Pitfalls
As you introduce your children to the basics of business, be sure to warn them of the dangers of compounding debt. With teenagers and college students becoming the biggest targets for credit card companies, it will be critical for your children to understand how debt works and how it can quickly get a person into financial trouble. The use of credit cards and other debt will be important in helping your children develop a solid credit history, which will grant them access to higher credit limits and lower interest rates in the future. However, if not properly managed, the high interest rates usually available to young people compound quickly when balances are not paid in full each month and can take years to overcome. Spiraling debt or failing to make timely payments on debt (and other bills) can hurt a credit score, thus creating a vicious cycle.

By teaching your children to be smart with their money, you can truly help your children to develop the business acumen that they will need to be successful.