It’s appalling how many adults in today’s world have little if no knowledge of personal finance skills. They are just going through life flying by the seat of their pants when it comes to how to handle their money and finances, often, unfortunately with disastrous results. This is clearly evident when you hear the statistics for the amount of personal debt in our country. And so very often these people will say that they had absolutely no guidance from their own parents on the subject. That money was not discussed in their households when growing up. That it was often viewed as a source of tension as they witnessed their parents fighting about it. Money should not be a taboo subject when it comes to raising kids. And it certainly should not be a source of anxiety and despair. It is simply a tool/resource that if managed well can bring much joy and security to one’s life. The key here, of course is in managing it well. And this is (obviously) not an innate skill that we are just born with, but (especially in today’s consumeristic, ad driven, and complex society) needs to be taught. I have argued many a time that more needs to be done on this at the high school level with courses on personal finance and financial literacy skills. But the education can and should begin much earlier than that from a very young age. Money is a part of life, and lessons on what is all about and how to manage it can be incorporated into everyday life from the time a youngster can talk. It is imperative that they begin on their journey with the skills and knowledge to be financially successful adults. Here are some of the lessons that should be imparted on youngsters before they leave the nest to embark on their own exciting independent lives. #1. Money comes from work – Kids can see you going to the ATM and taking out bills. They watch you whip out your credit card to make purchases. It is all pretty magical. It is important that they realize that you actually earned all this money you are spending to get stuff. It cannot be apparent to them unless you tell them. In their own little world, you can begin to let them earn their own spending money to further understand the concept. Some parents tie their chores to their allowance. Others feel chores should be done as a member of the household without pay. But you should provide something (extra chores?) that they can be doing to earn their own spending money. As they get up into their teen years, they can begin to earn money outside the home by babysitting, dog walking, yard work, etc. And in later teen years, with an hourly wage job. #2. Money should be saved – Most kids first impulse is to want to go out and spend those shiny new quarters and crisp dollar bills they now have in their hot little hands. Heck, there are many adults who have that impulse. That is why saving needs to be taught. Help them to set up goals. If they have their eye on something that costs more than one week’s allowance, help them to set up a savings plan to pay for it. Of course, this will start very simply when they are tiny, saving up 2 or 3 weeks of allowance, and escalate to bigger spending goals as they grow #3. Money needs to be budgeted – They will not be either spending all their allowance or saving all their money. Help them to see that they can spend a portion of it on todays wants while still saving a portion of it aside for future goals. This is the beginning of budgeting. By the time they are older teens they should be responsible for as much of their own wants and needs as possible, such as clothes, phones, entertainment, car expenses, etc. This money can come from an allowance or (preferably at least some of it) from work outside the home. Help them to figure out how to organize their money to pay for these things and to also be saving for future needs (a car, college expenses, an apartment, etc.) #4. Learn the difference between wants and needs – Kids can be impulsive (again, ditto some adults). It is up to you to show them the difference between frivolous spending and real needs. They need to be taught to really think about purchases rather than just thoughtlessly throwing money away. Use examples in your own life. Let them in on your own thought processes when weighing a purchase #5. Teach them about advertising. I heard a statistic once that in today’s world we are bombarded with something like 2,000 ads a day! Children do not even know that these ads are trying to sell them something. Talk to them about that. Discuss with them how to be a savvy consumer. Teach them to be strong against the lure of very convincing and attractive advertising. Tell them that if they buy brand names vs generic they are paying for the advertising. #6. Teach them that stuff does not equal happiness. Show them by example how it is possible to lead a very comfortable and happy life without a lot of stuff accumulation. Here is an opportunity to show them just how joyous a frugal life can be. Talk to them about peer pressure and the concept of “keeping up with the Jones’s”. When your kids are much older, before they go out into the world for good (college aged), it will also be important to tackle some more adult topics with them, such as credit cards and debt, credit ratings, saving and investing, emergency funds, and even eventually mortgages and saving for retirement. I will cover all this in a later blog All the best to you and especially to your kids for learning to create a bright financial future!
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