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Starting a Business Early Teaches Financial Literacy
Managing the finances in your personal life is a lot like running a business, but running a business can be a lot more fun for a teenager or even a younger child. Thus, helping your child to be a young entrepreneur can be a very effective way for them to really experience and learn financial literacy. You might even learn a thing or two at the same time.
If you think kids can’t run a business, take a look at this 2009 article on Business Insider, where pre-teens as young as 9-years-old made millions more than their parents. Kids have a natural-born entrepreneurial drive; we just need to create the space and home and at school for that drive to thrive!
According to a Wall Street Journal blog, some grade schools are now starting to teach entrepreneurship by having students start micro businesses. They found that it’s far easier to teach kids the practical business literacy skills first and let the abstract concepts of financial literacy materialize naturally. Here are just a few key financial lessons than can be learned by starting a business:
- Making money can be fun. Too many people grow up thinking that making money must involve “work,” which is painful and hard. To counter this, parents should help their kids to pick a hobby or talent that could become a business and make money. There are now tools available like our YOUTHpreneur Biz Kit to simplify the process and explain the terms.
- Budgeting is a natural part of business. Have your young entrepreneur look ahead at things they need to start and run their business. Ask them to sit down and create a budget sheet. How much would it cost them for equipment or goods they might need, compared to how much they are making in profit? This should lead to think about income, expenses, and savings.
- Get a little help from your friends and family. Now is the time for them to learn about loans, interest, and investments. These are good things, in providing head starts for the business, but they all have to be paid back in due time. In this context, the practical issues of teamwork, partnership, customers, and competitors are easily understood.
- Agreements in writing are normal business. To remember who owes what to whom, and who promised to do what and when, things have to be written down for clarity, in a friendly way. This step will make the financial literacy concepts of loans, credit cards, and home mortgages more meaningful.
- Enjoy the power of ownership. Owning a business is an opportunity for a joint trip to a bank or savings institution, to give them an understanding and real experience in dealing with money as a virtual as well as a physical entity. Plus, it introduces the concept of keeping records, regular review of statements, and home rental versus ownership.
- Have them make real decisions on business activities. It’s never too early to have your child understand the price differences between different quality parts, and the tradeoffs between higher prices and fewer customers. Then there are the decisions about how much to spend on marketing, and when and how to hire help.
- Learn to use social media and the Internet responsibly. Social media is fun for kids, but they need to understand that it has a serious side as well. Financial literacy these days means they need to know how to avoid scams and phishing, how to use eCommerce safely, and how pay-per-click advertising really works.
- Start to build a resume they can be proud of. Through entrepreneurship, financial literacy is a natural and it provides for experiences that can be shared on college and other applications where leadership and special skills go a long way.
Financial literacy doesn’t have to be a boring exercise in memorizing abstract principles. Learning can be fun for your child or loved one, in the context of following their passion and setting up a non-profit business to help others (social entrepreneur), or to generate some extra money for themselves.
In the process, your children might even grow to appreciate the reality and challenges you face in supporting them and running the household. That could make your life a lot more enjoyable and satisfying as well. Win-win situations are what businesses and financial literacy are all about.
To your success!