When was the last time you talked with your child about money and finances? As parents, one goal when it comes to raising our children is to help them become self-supporting adults and a contributing member of society.
We see that our children get the education they need to get a good job and eventually go out on their own and support themselves, but we seldom talk to our kids about money. Case in point, according to a study composed of more than 25,000 respondents performed by George Washington University and funded by the National Endowment for Financial Education in 2012, there is a disconnect between millennials and their money. When it comes to talking to your child about money, why are we reluctant?
Kids begin learning at an early age. Long before they step into school. From the time they’re born they begin to watch and listen, and they learn the basics. By the time a child is in preschool, he or she is learning social skills and negotiation skills for sharing toys during playtime and on the playground. They learn math skills throughout their formidable school years, but many don’t gain the skills they need when it comes to personal finances and money management. Matters like check writing and other personal finance concepts are taught in school, so without parental guidance, it’s left to the child to figure it out. Instead of learning from their mistakes, without any guidance, the trial and error method can leave our children in a big financial mess and wondering what they did wrong.
Here we take a look at some things you as parents can do to help your child become financially literate adults.
1. Start early
Very young children are curious and learn by example and through play. Take them shopping when they’re old enough and let them see how you go about making smart purchases. Children love to mimic their parents and learn through the process, so let them play “store” and go through the motions of purchasing items.
2. Start small
When your children are young you will want to start small Teach them about money – dollars, coins, what each is worth, and what money is for. Make it fun and include games and pretend play.
3. Talk about the importance of having a budget
The idea of a budget in its simplest form is your income minus your expenses. The whole idea of a budget is to have more income than expenses and kids can understand when you keep the conversation in simple terms.
4. Talk about the importance and differences between Savings Accounts, Checking Accounts and debit cards
Some children may have a difficult time understanding even some of the common aspects of finance, including things like savings accounts, checking accounts, debit cards and credit cards, and it’s important they learn the differences. Many parents may be hesitant to introduce their children to debit cards and credit cards. But we are trending more and more toward a cashless society. According to Statista, The Statistics Portal, debit cards were already trending as the preferred form of payment in 2015 and is only gaining in popularity. It’s important they learn based on the ways of future, but clearly each parent must decide what’s best for each individual child.
5. Talk about the importance of setting financial goals – Have your child set a goal and help them reach that goal
The notion of goal setting is a learned behavior. You can help your children by helping them set small attainable goals when they’re young. Start small such as saving up for a special toy and as they get older and more sophisticated, so will the goals. By the time they’re a young adult, goal setting and good financial decisions will be second nature.
6. Talk about the difference between wants and needs
Another simple concept that sometimes gets muddied some of today’s culture. Talking through it with your child can help them better understand the difference between the two and exactly what it means in a financial sense.
7. Include the children in family financial discussions and decisions when appropriate
When possible, include your children in discussions and decisions about the family finances. Being involved helps them to better understand what decisions are made and why. Then when they’re faced with a similar situation, they can understand the connection and perhaps be a better decision maker in the future.
8. School them on the importance of having an emergency fund
We all know that things don’t always go according to plan, so we all have to plan for the unexpected. A job loss, an unexpected medical bill, or an accident can easily be a financial setback if one doesn’t plan and prepare for the unexpected.
9. Teach them about credit and how to use it wisely
It’s often difficult for a parent to watch their children grow up and take on more and more adult responsibilities. As parents we often want to shield them from the hard lessons in life. But just like a parent teaches his or her daughter to drive a car and one day they will take off on their own, we also need to teach them about credit and how and when to use it properly. This includes credit cards, loans, and lines of credit. One’s credit score is important. You need a good one in order to get a car, a house, and in some cases, when it comes to employment. It affects what interest rate you're charged. You must use some kind of credit to have a score. By the time your child is in his or her late teen years, they should know the fundamentals and make the connection between having good credit and a good credit score.
10. Help them understand identity theft and fraud
Unfortunately in this day and time, everyone has to be vigilant to protect themselves against identity theft and fraud. Even children have been victims to these crimes. And while many parents may think they’re protecting their children by not talking about it with them, it’s important that parents talk to their children about the threat and ways to keep themselves and their confidential information safe. For example, have you ever seen a picture of a proud young adult in a selfie holding his/her first credit/debit card on social media? It has and does happen.
11. Help your older children understand insurance and company benefits
Currently parents can keep their children on their health insurance until they turn 26. Once your children get older and on their own, the first priority will most likely be a job. With the job, may come insurance and company benefits. Like financial literacy topics, students don’t generally learn about health insurance and company benefits in school. But you can help by talking with your children before their first interview, so they know the process and are prepared when the time comes for them to make decisions about their own insurance and benefits.
12. Gross vs. Net wages – “Who is FICA and why is he getting all my money?” Rachel Green, Friends
You don’t know what you don’t know, and some young professionals who are just starting out may not realize the difference between gross and net wages and what’s taken out (the difference) is taxes and insurance. Talk about it with your children, so they realize it is all part of the process. They also should know that withholding amounts can be adjusted when needed.
13. Teach older children about investments and why they should be interested
When children are young, it’s common to think you have years before they will be old enough for some things. But the reality is time really does fly, and before it’s too late, you may want to mention investments, how they work, and risk involved. You may even want to tell them what your investments are, why you chose them, and if you’re happy with your investments. Apps such as Robinhood and others that are popular with young adults can make investing easy but should be used with knowledge and caution.
14. What is expected when a person retires and how much money (on average) does one need to retire comfortably?
Even though retirement is a lifetime away from young children, at some point talking about retirement may help them see what all the planning and saving for retirement is about. When you get older, the last thing you want to worry about is money. Of course the amount depends on many things, including the lifestyle one wants to have during retirement.
15. The meaning of value
While teaching money matters to your children, it’s sometimes easy to over emphasize the money itself. We all need money to live, but there are things that are more important than money, such as health and peace of mind.
The goal is for your child/children to grow up to be fiscal responsible adults, and with a little knowledge and guided experience, your child/children can grow up and find financial success.
What other tips do you have to share with other parents? Please share in the comments of this blog post.