Talking to your kids about personal finance - at any age
Only 17 states require schools to offer some form of personal finance education. The educational system can teach advanced topics like trigonometry and physics, but the majority doesn’t teach real-world concepts like balancing a checkbook or creating and keeping a budget.
…And the fact that money is often a taboo subject at home only compounds the problem. We talk to our kids about sex and drugs, but not about how to make sound financial decisions.
It is imperative to teach our kids basic financial concepts and terms. Knowledge is power and having a basic understanding of these terms helps our children not only learn more about finance, but avoid falling into the trap of being taken advantage of by unscrupulous professionals. Understanding things like APR and interest rates can help them negotiate better loans and more advantageous savings options – and empower them by having financial accountability.
So since April is Financial Literacy month, what better time to start then now?
For young children – keep the concepts simple. Teach them that money has value and that it is FINITE. If they want a new coloring book now, that means that they can’t afford to have ice cream later. Showing that there are CONSEQUENCES to their financial decisions will help when they need to make and maintain a budget on their own.
As they get older, help them make decisions about their money. Some parents have “spend”, “save” and “share” jars that show children how to divide what they earn. “Spend” would be for discretionary items, “Save” is for a larger item in the future and “Share” is for charitable donations. This strategy helps children understand that their money serves multiple purposes.
Teach them that there is a distinct difference between a NEED and a WANT. You need to eat, but you want to eat at a restaurant. You need to get to work, but you want to get there in a Porsche. By teaching your children to pause before buying an item and ask themselves, “Do I really NEED this?”, you will help them understand that distinction.
Another excellent way to teach children about needs and wants is to wait a day before making an online purchase. Oftentimes, these purchases are impulsive. By leaving an item in your “cart” for 24 hours, you can step back and decide if that purchase is necessary. In a world of instantaneous response, delayed gratification is an essential lesson to learn.
As your adult children exit their college years, they will begin their own financial journey. Currently, more and more parents are supporting their adult children after they graduate from college. As parents, it is essential that our children know that we are always there. But, it is also essential for them to become independent. If they are living at home, suggest they pay some sort of rent. (You can always put this money aside to give them later when they move out.) Start having them pay for their own way. Take them off of shared credit cards, or have them pay their own cell phone bill or insure their own car. These are very SMALL ways for our children to begin to be more financially independent.
Discuss more complex ideas – such as the stock market, retirement plans and taxes. Don’t just do things FOR them – work WITH them to understand these concepts. Start a small brokerage account and let them become familiar with purchasing stocks and talking with a broker.
Let’s face it – we will not be here forever to hold their hand. Help them now to walk on their own two feet.
If you are still uncomfortable having this conversation, consider trying SoundCheck – our new program for young professionals, ages 25 to 35, to gain financial accountability. We will help them create budgets and net worth statements and define their short and long term goals. We will demonstrate to them that there are three components to wealth management – acquiring wealth, transferring wealth and protecting wealth – and suggest the best ways that they can cover all three. But most importantly, we are an impartial third party who will not judge. We will work WITH them to learn the skills and terms they need to become a true financial partner.
You’ve passed on your eye and hair color.
You’ve passed on your familial values and history.
Now, pass on your financial literacy. They will thank you for it.