How to empower your kids through financial literacy

By Andrew Kadjeski

Creating a 'household economy' taught our kids about money and life

Financial literacy means many different things to many different people. For me, it entails having the knowledge and skills to handle money responsibly and confidently. In my work at Vanguard, I witness adults making financially savvy decisions with their money each day. But, I know teaching and embracing good financial habits isn't just for adults.

Throughout my childhood, my parents taught me many valuable lessons around being purposeful with money. My mom, for example, was an avid coupon clipper. Accordion book full, there were times where she would hesitate to finalize a purchase if she didn't have a coupon for it. Sure, it was easy to poke fun at her sometimes, but looking back, my mom truly modeled the importance of planning and being deliberate with our money.

Those lessons from my youth turned into a passion for financial literacy, and as part of my job, I'm fortunate to play a part in Vanguard's free financial literacy programs that are designed for kids and run by a group of Vanguard volunteers. I'm also a father to two wonderful kids, ages 5 and 8, and my wife and I are trying to teach them the importance of good financial habits and how to be financially responsible.

Bringing the concepts of earning, saving, and spending to life

Embracing the structured and hands-on approach of Vanguard's financial literacy programs, we've instituted our own household economy system-we call it the Kadjeski economy (creative name, I know).

Through our Kadjeski economy, our kids have the ability to earn up to $5 Kadjeski bucks (K-bucks for short) each week for completing daily responsibilities, which can include getting ready in the morning independently, packing their backpacks for school, brushing their teeth, and more. Just as easily as they can earn K-bucks, there are times when if tasks aren't completed, they may lose them. They can also earn K-bucks for helping around the house and through random acts of kindness-or, as my wife puts it, "filling someone else's bucket."

At the end of the week, we add up their earnings and they decide whether to spend or save them. For example, 10 K-bucks can get them something from a "bucket of treasures," while 50 K-bucks gets them a trip to the store to buy a new toy or a book. If they reach triple digits (100 K-bucks, for instance), they can choose an experience with the family, like going out for ice cream.

We let them choose on their own, but my wife and I make a point of playing coach, helping them weigh the pros and cons of rewarding themselves now versus later. For my son, the instant gratification of using his K-bucks to buy a pack of Pokémon cards right away can feel great, but his smile and excitement is unmatched when he's saved enough to afford a family experience, like our recent bowling outing. That sense of accomplishment and pride is something we're diligently working to foster in our home.

Some user tips for your own home economy

Using the concepts within your own household is fairly easy. Here are some tips to keep in mind for overall success as you and your family navigate your own home economy system.

Anchor around the core concepts of earn, spend, save. Often times, families already have an established set of chores and allowances, which hits on earning, but be purposeful with introducing activities and discussions designed to familiarize your kids with the concepts of saving and spending. Combined, these core concepts not only help amplify your kids' grasp of money, but also their creativity, thoughtfulness and confidence around it.Customize the program to make it fit your family. There's a lot of scope for setting how much your kids earn, what they can earn it for, and how they can spend their earnings. Make it as fun and as relevant to their interests as possible. And don't be afraid of being a bit selfish with how they can earn. If you choose wisely, your household can run more smoothly. I remember when we all felt rushed in the mornings to get out the door, but, because of our Kadjeski economy, our son now often finishes his getting-ready-for-school "chores" early enough to shoot some baskets outside before we head out.Use visual management wherever possible. We use paper money that our kids keep in actual wallets, a dry erase board for chores featuring "complete" check boxes, and a calendar that calls out pay days. These types of things help make the "economy" more concrete and motivational.

What's next?

For my family, I'm excited about introducing the concepts of giving and eventually investing when our kids are older.

And for the two literacy programs I sponsor, I'm looking forward to hearing and seeing firsthand the impact of the micro-economies that students, teachers, and families have developed, particularly as we begin their rollout in digital formats. The paper version of My Classroom Economy, launched in 2011, recently hit the milestone of having reached one million students. That's incredible, and we're excited about the impact that our new dynamic online version of the program will have on bringing financial knowledge and money management skills to many more kids.

Andrew Kadjeski is principal and head of Brokerage & Investments at Vanguard, a role which includes oversight of Vanguard's education savings business. He is also the sponsor of Vanguard's My Classroom Economy and one for families called My Home Economy, free-of-charge programs that enable educators and parents to teach children financial responsibility through experiential learning.

-Andrew Kadjeski

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04-24-24 0730ET

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