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:
- 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.
- 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.
- 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.
- 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.
- 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