One of subjects we have elected to teach our children from a very early age is financial due diligence. We have been using the approach of you’re never too young to guide our way. When we transitioned to homeschooling, we decided that a finance class would be part of our rotating curriculum. Some have inquired as to what we have been teaching our children (ranging ages 11 to 2). We strive to keep our finance class focused on applicable life skills. The children tend to be more receptive if they can grasp the how will this apply in real life strategies rather than dreading endless bookwork filled with financial jargon.

Each week the children help with the menu planning, couponing, food budgeting and actual shopping. The level of involvement and complexity in such tasks naturally revolve around their individual understanding and ability with the matter at hand. For instance, our oldest, currently in the 5th grade, is much more involved in the entire process than say her five-year-old brother. While at the store she is to keep track of our purchases using mental math and estimation. She will then have to report to me her estimated total, tax included when we approach the register. We have been working on taking into account: sale prices, coupons used and/or other discounts that are to be applied to the final bill.

During the shopping process the children are using a variety of skills from counting the apples to estimating the weight of the grapes or comparing prices. Last week for example we had a rather interactive discussion on which spaghetti was the best buy: 1-pound, 2-pound or the 3-pound package. There we stood in the isle, calculator in hand, computing the per ounce cost of each package. The children were a bit perplexed when they figured out that the 2-pound package was in fact the best price. A valuable lesson that bigger doesn’t always translate into better. A lengthy discussion about marketing and advertising strategies followed. The children concluded that it wasn’t very nice of the stores to try to trick people like that, their words, not mine. A valuable lesson indeed.

Yes, it is true. Shopping this way does take a long time and is not always a picnic…but our children are learning important life-lessons. That is priceless.

Another lesson in financial due diligence is money management. We have adapted Dave Ramsey’s Financial Peace Jr. to fit our families needs. Our children love Junior and all his adventures. Our fifth-grader is in charge of our families savings spreadsheet (Microsoft Excel). We set up the spreadsheet with formulas that automatically adjust the numbers (add, subtract, percentages). The older children were shown how to program the spreadsheet in this manner and educated on when and how this would be a useful tool. The children are paid their commissions each Saturday and it is the responsibility of our fifth-grader to enter those numbers into the spreadsheet. The spreadsheet is set up with five columns: date, payment, savings (25%), give (25%) and spend (50%). With the formulas calculating the percentages the spreadsheet is very simple. She simply plugs in the date and payment to which the computer calculates the appropriate percentages and places them in each column. Each column is automatically totalled at the bottom. The children’s commission payment is based upon their performance (chores completed) that week, the family account has a $5 payment each week and the youngest (2-years-old) has a payment of $1 per week for helping around the house. Yes, even he has chores.

This week we took the lesson a step further. We have been discussing compound interest savings accounts (each child has one) and the benefits of saving from birth into adulthood. She was asked to work out the following problem:

Consider that your parents deposit $25.00/month into each child’s compound interest savings account. Calculate how much money they must set aside each month to deposit $25.00 into five accounts. Then calculate how much money they should set aside per day (using a 30 day month) in order to pay these monies. Explain your answer.

Her Answer:  $125.00 per month; $4.17 per day; rounding up from 4.16666667 because $4.16 would be $.20 short

Next we went to an online Savings Account Interest Calculator to find out the answer to the following problem:

You are saving to buy a car on your 18th birthday. Consider that your parents opened a Compound Interest Savings Account for you the day you were born. Consider that you personally set aside $1 per day to deposit into your savings account. Taking into account the $25.00/month deposit from your parents; calculate the total savings (including compound interest) for 18 years. Would you have enough to purchase a newer model (within five years old) eco-friendly car on your 18th birthday? Show your work.

Her Answer: $1.00 x 365 days/year = $365.00 per year; $25.00 x 12 months = $300.00 per year; $365.00 + $300.00 = $665.00/year; total amount saved $12,073.24 —> enough to buy a car!

Here is a screenshot from her calculations:

If you start with $665.00 in a savings account earning a 0.100% interest rate, compounded Annually, and make $665.00 deposits  on an Annual basis, after 17 Years your savings account will have grown to $12,073.24 — of which $11,970.00 is the total of your beginning balance plus deposits, and $103.24 is the total interest earnings.

Year Deposits Interest Balance
Begin $665.00 $665.00
1 $665.00 $0.72 $1,330.72
2 $665.00 $1.39 $1,997.11
3 $665.00 $2.05 $2,664.16
4 $665.00 $2.72 $3,331.88
5 $665.00 $3.39 $4,000.27
6 $665.00 $4.06 $4,669.32
7 $665.00 $4.72 $5,339.05
8 $665.00 $5.39 $6,009.44
9 $665.00 $6.06 $6,680.51
10 $665.00 $6.74 $7,352.24
11 $665.00 $7.41 $8,024.65
12 $665.00 $8.08 $8,697.73
13 $665.00 $8.75 $9,371.48
14 $665.00 $9.43 $10,045.91
15 $665.00 $10.10 $10,721.01
16 $665.00 $10.78 $11,396.79
17 $665.00 $11.45 $12,073.24
Totals $11,970.00 $103.24 $12,073.24

Next week we will sit down with the used car ads and call a few dealerships to see kind of car she would theoretically be able to purchase with such funds. I can tell you one thing, this lesson has certainly encouraged her to start saving for that car!

How do you instill financial due diligence in your children?


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