Learning Money Management at an Early Age.
Twenty years ago you did not hear about teens struggling with credit card debt
Twenty years ago the dream of buying a house was in almost everyone's reach.
Twenty years ago you believed that if you worked hard and contributed to a pension fund your retirement was secure.
A lot has changed and it means your children may have to make tougher financial decisions than you did.
The education system still fails miserably at teaching kids basic money management skills. That's where the parents come in.
There is still a culture in many parts of society that believes that children should be "protected" from money matters. Nothing could be further from the truth. Children should be exposed to finances early in life.
I'm not suggesting they should help carry the burden of worry during tough financial times. They should have a basic understanding of where money comes from and how much work it takes to purchase something.
They should learn what things cost and how items compare in price.
Most of all, they should learn the value of saving early and saving often.
Ten Ways to Teach Your Children Fiscal Responsibility
1. LEAD BY EXAMPLE:
A child who sees their parents make impulsive and spur of the moment purchases will grow up to believe that is the norm.
A child who hears constant yelling and fighting over finances in the home will grow fearful over money management and it's consequences.
2. ENGAGE IN A CONSTANT AGE APPROPRIATE DIALOGUE:
Your child does not need to know how much money you make, but should grow to have a realistic idea of what the family can afford.
Take him or her shopping. Compare prices and discuss value. Have a frank discussion about expectations for presents well before Christmas. Involve the child in planning for major expenditures like a family vacation.
3. GIVE YOUR CHILD AN ALLOWANCE:
Your child should have a source of income. Whether you want him or her to do chores to earn the money is up to you.
A child must have some experience with money to understand the basic rules of financial planning including "living from paycheck to paycheck".
4. GIVE YOUR CHILD AN OPPORTUNITY TO EARN EXTRA MONEY:
It's the best way for your child to appreciate the value and rewards of work. It's also a great opportunity to boost their self esteem with positive feedback on the job they've done.
Reward initiative when your child comes to you with a job in mind.
5. SET UP A SAVINGS ACCOUNT FOR YOUR CHILD BEFORE THE AGE OF 13.
Children should have their first bank account before they hit their teens. They can keep track of their money and watch it grow. Even with a small amount in the account, it's the best way to demonstrate the principle of interest.
If your child has a specific goal in mind, such as buying new sports gear or electronics you may want to offer to match his or her savings so they can reach their goal sooner.
6. ENCOURAGE YOUR CHILD TO WORK PART TIME IN THEIR TEENS:
They don't have to work many hours a week to appreciate the freedom of having their own paycheck. Hopefully, by this time they will have embraced the saving habit. If not, remind them about long term goals and suggest they put 10% of their check into their savings.
This is your child's first opportunity to realize that an hourly wage multiplied by the number of hours worked does not equal the figure on the paycheck. Now they are learning about deductions and taxes.
7. INCREASE THEIR SPENDING POWER AND INDEPENDENCE WITH A BUDGET:
When you think they're ready, sit down together and make out a monthly or bi-weekly budget for your teen. Include clothing, entertainment, gas and other incidentals. Give them that money to manage on their own.
Once again, they will learn (perhaps painfully) how hard it is to make money last. Make this an experiment. If, after a couple of months, it's obvious your teen can't manage money, end the experiment and try again when they are older.
8. MANAGING CREDIT CARD DEBT:
Your teen may be able to get a credit card without your signature. Talk to him or her about their credit limit and how they plan to pay the bills.
As your teen ages, money management is just one of the many issues that walks the fine line between respecting their need to grow and protecting them. More than half the teens in the U.S. do not pay their credit card bills on time. If your teen gets into so much trouble their credit rating is taking a beating, you may have to bail him or her out. If you do so, lay out an ironclad plan for them to repay you.
9. GET SOME HELP FROM THE EXPERTS:
How many of us have looked back and wished we had followed some of the financial advice our parents gave us? Unfortunately, many people in their teens and twenties can't picture a future that is anything but rosy. The will always have a good paying job. They will never be laid off. They will never be sick and unable to work.
There are many great books on the market that offer financial advice for teens and young adults. They are well written and targeted towards their audience. Stick one in a Christmas stocking or leave it on your teen's night table. Sometimes advice from a stranger works better. Read the books yourself. They have great financial management information that can be used by all ages.
10.KEEP YOUR OWN AFFAIRS IN ORDER:
Some day you will have to sit down with your son or daughter and talk about your own financial situation. They should not have to deal with a finacial mess if you pass away. It's tough to do, but it's important.
The time may come when they have to make some serious financial decisions on your behalf.
They should know about any of your assets and any of your debts in order to make informed decisions.
Then you'll be very glad you raised financially savvy kids.