Importance of Introducing Personal Finance To 5 Year Olds

I would have loved to fly with a headline like ‘Instilling Positive Work Ethics In 5 Year Olds’, but I was afraid millennials and generation Zs will shrug the post off, screaming ‘child labor!'

Thus the more subtle title 'Importance of Introducing Personal Finance To 5 Year Olds'. Actually, the two concepts are like a single coin, I have simply favored one side over the other.

Now that my post has escaped the trash bin and I got the attention of fellow millennials and our younger siblings, let me address the entire public.

My name (Wawira – someone who works) has kinda haunted me my entire life. Work has its way with me. It has this powerful force that keeps pulling me towards it. So I don’t recall when I started working. 

But I remember in traces when I was still very young, I used to bite off more than I could chew quite often, which always resulted in frustration. Nevertheless, I never enjoyed resting until I completed what I FELT needed to be done.

While growing up in the farms, my community was everything communal. People used to have so much free time that they worked for each other for free. Paid work was rare in most farms. 

My Personal Finance Illiterate Self

So when I got my first job at the age of seventeen, I was not as excited as anyone my age should have been. I was used to working, duh!

Maybe the only thing that was different was the monthly salary. That should have excited me. But no, it didn’t. 

In my unspoken opinion, I felt I was worth more than what the retail market paid form four leavers for tending to their businesses. Damn our poor economy.

Then 5 years later came my first formal employment and I was completely smitten. Full week accommodation (B & B) at one of the finest hotels in town, upon arriving at the up-country work station. Settlement allowance. Dinner and taxi fare whenever working late (make that daily). Generous per diems when visiting field offices. And an above market rate starting salary. What more could a fresh-from-college girl ask for?

And don’t forget that was back in 2009, when the great recession had not injected its poison on inflation rates. A kilo of sugar was going for half its current price, as was the case with most items. With 2k you could fill a shopping cart. Life was good.

So my first formal employer spun around a ship that was headed for troubled waters. Someone may say I was lucky. But not everyone was as lucky. 

I don’t know what would have happened, if I had landed a low paying employer with no regard for employee welfare. I’m sure I would have tagged my so-so attitude towards low-paying jobs along. My mind draws a blank whenever I try to imagine the possible outcomes. 

Let me just say I’m grateful to God for rescuing me. Because when I look at fellow personal finance illiterate Kenyans, I see them looting their employers’ balance sheets, the national treasury, while others are terrorizing citizens, robbing them in whichever way possible. 

And no matter how much they amass, their pockets never fill up. They are so terrible with finances, they can’t create wealth to save their life (at least honestly).

There Is Nothing Like Little Salary

There is a shared belief among investment gurus – ‘No salary is too little to invest'. And from this I derive my school of thought – ‘there is nothing like little salary’. 

I’m sure you have heard personal finance experts say again and again, 'learn to live within your means'. I also advocate for the same. But for someone who has no idea how to live within their means, it feels like people are just ranting, babbling in a foreign lingo.

Let me be candid. If my 17 year old self had learnt how to manage personal finances from a tender age (if I ever had any);

1. I would have been excited about my first unskilled job. Probably, I would have channeled my little salary towards worthwhile investments, and derive fulfillment from watching the money grow. And
2. When I started working after college, I would not have been tempted to live my employer's life. You know, spending huge chunks of money to keep up with my status and then saving whatever little that remained, like most employees do.

That’s why I advocate we bring up financially literate children, by introducing personal finance to them while they are as young as five. 

Learning to manage their finances while they are still young, will save them from lots of woes in future. Like compromising on their personal and work ethics to fund expensive and generic lifestyles, wallowing in poverty for lack of self-drive etc.

How Can You Introduce Personal Finance To a 5 Year Old?

The thing is, you cannot learn to manage personal finances unless you have a regular income. So where does a 5 year old get income from?

Actually, 5 year olds do work, at least in most households. It’s only that we deprive them of their wages. Polishing their shoes, making their own bed, washing their undies, organizing their own bedrooms etc. That is work that requires effort and should be remunerated accordingly.

But we feed them, clothe them, take them to school and blah blah. Yes, you do all that for them, because it’s your duty and their right. 

Whatever we think we instill in kids by having them work without pay, doesn’t work out. Consider my story above. By the way, I was one kid who was never told what to do, I just enjoyed doing chores. How much damage then, does forced labor inflict on children’s outlook towards work?

So we are saying, once kids start relieving you by doing their own chores, reward their efforts with an income. Make it a monthly salary so they can work harder as they anticipate their pay day.

Then sit down with them and teach them the hard stuff (real personal finance). Depending on their level of understanding math, start by training them to tithe 10% of their income. 

Secondly, help them to open a bank account and deposit 30% of their income as savings (every month), which should be channeled towards the most secure investment in the market. 

Secure investments do not yield much returns, but they are ideal for kids. You don’t want to confuse them by telling them someday that their investment has sunk. Choose security now; they will engage in risky investments when they reach their teens and early adulthood.

Thirdly, let them slash a further 10% of their salary and stash it in a piggy bank as an emergency fund (A friend might request their company to a picnic in the course of the month. They will need money for snacks). 

Finally, help them allocate the remaining 50% to whatever items they need to buy. With time they will master financial discipline and you might start seeing them spending less than 50% of their income.

In that case, whatever remains should go into the piggy bank and the total (balance of emergency funds and 50%) deposited into a junior bank account at the end of the month, as they receive their next salary.

Wrapping up

Taking time to instill these important personal finance principles in young children has timeless benefits. The most obvious one is that they will  grow into wealthy adults, who value work and integrity. 

They won’t need to loot the treasury to gain riches. Because they will have gotten used to the feeling of fulfillment that comes with honest gains.

Remember, any parent can do this. The salary doesn’t have to be much. Whatever you can afford to motivate your kids and teach them sound financial principles, start with that. 

Think ahead with me…... What beats having a house full of hard-working, motivated and financially literate tweens and teens? 

Start right now by putting your 5 year old on a payroll. And then introduce these money principles as their age allows.

That way you will gift the economy personal finance literate workers, who will not only be able to manage with any amount of salary, but will be able to build wealth their modest earnings notwithstanding. I.e. if they will ever NEED to look up to employers for their sustenance.