SHARE
advisors
© Getty
Oct 31, 2017

How do I teach my children the proper utility of money and the importance of savings?

Education, both formal and informal, still remains the cornerstone of continued progress for future generations. But how do parents in a highly developed society with bountiful resources teach the proper utility of money and the importance of savings to a generation that has never known a world without the internet and has the world’s accumulated knowledge literally at its fingertips?

Since most learning begins with the basics, parents and guardians can provide children a fundamental knowledge of the economy by segmenting the topic into five broad categories:

  1. Money: Perhaps start by simply answering the question: What is money? Explain that money is anything of value that serves as a general accepted medium of financial exchange—that is, what you use to buy something. It is also described as “legal tender” for repayment of debt, a standard value, a unit of accounting measure and a means to store buying power for the future.
  2. Economics: To define for children what an economy is, show them that just like your business, members of society use resources to produce, distribute and consume while deciding to keep or sell those goods and services for their own benefit.
  3. Basics of Supply and Demand: Again, perhaps with your business as a model, show your children how demand refers to how much (quantity) of a product or service is desired by buyers/customers. The quantity demanded is the amount of a product people, your customers, are willing to buy at a certain price. Supply, then, represents how much the market/your company can offer for purchase.
  4. Inflation and Deflation: Tell children that inflation occurs when demand is greater than supply, so suppliers, like your business, can charge more since quantities are scarce. When the reverse occurs, it is called deflation, meaning there is more supply than demand, so prices fall. You might want to further explain that the Federal Reserve Bank of the United States, or simply “the Fed,” stabilizes inflation and deflation by increasing or decreasing interest rates and expanding or shrinking the money supply of the economy.
  5. Financial Markets and Economic Policies: Explain that what creates efficiencies of supply and demand through local exchanges around the world are called “markets.” Economies of the world create financial, political and trade policies, or rules, for global interaction in the  markets. Tell your children that economic activity is similar to a board game the world’s economies must play by a defined set of rules.

Some players (economies) follow all the rules, and others choose to make their own! Overall, the balance of the economies is set and structured by playing fair.

While these categories may at first seem a bit abstract, particularly to younger children, discussing them will help them in their daily lives, from paying bills and balancing a checkbook to larger decisions such as purchasing a home or investing in their own children’s future.

Also, since it is never too late to learn, may we suggest that aligning yourself with the right advisor will provide you the proper education to pass along to the next generation.

Nick Kavallieratos is a Financial Advisor with the Wealth Management division of Morgan Stanley in New York, NY. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC, Member SIPC [www.sipc.org]. Morgan Stanley Financial Advisor engage Worth to feature this article. Nick may only transact business in states where he is registered or excluded or exempted from registration [www.morganstanleyfa.com/corporate&wealthman agementsolutions]. Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Nick is not registered or excluded or exempt from registration. The strategies and/or investments referenced may not be suitable for all investors. CRC1884640 09/17

RECENTS TWEETS

Disclaimer: Worth magazine is a financial publisher and does not recommend or endorse investment, legal, insurance or tax advisors. The listing of any firm in the 2018 Worth® Leading AdvisorsTM Program does not constitute a recommendation or endorsement by Worth magazine of any such firm and is not based upon Worth magazine’s experience with, or prior dealings with, any advisor. The information presented for each advisor, including but not limited to any related profile, statistical data, presentation, report, commentary, recommendation or strategy, has been provided by such advisor without review or independent verification by Worth magazine. Any such information is the sole responsibility of the advisor. Worth magazine makes no representation or warranty as to the accuracy or completeness of such information, assumes no liability for any inaccuracies or omissions therein and disclaims responsibility for the suitability of any particular investment recommendation or strategy for any person. Nothing contained in Worth magazine constitutes or should be construed as any form of investment, legal, insurance or tax advice or as a recommendation to buy, sell, hold or trade any securities, financial instruments or assets. Readers are advised to consult their legal, financial, insurance and tax advisors prior to making any investment or pursuing any investment strategy. Past, model or hypothetical performance is not indicative of future results.

back to top