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Help Your Children Become Financially Literate
It's never too early to begin teaching children the basics of finances.
So much of our lives revolve around money; you wouldn't have a house to live in, a car to drive, or food in your fridge were it not for money. Despite this fact, forty-three percent of college students don't know the difference between a debit card and a credit card. These are the same students who are going to be our next government leaders, medical providers, non-profit chairmen, and they haven't learned a lot about savings, credit, and budgeting at school or at home.
College students around the country were recently surveyed. Of those surveyed:
- 58% indicated they are not saving anything
- 30% indicated their parents did not teach them about managing money
- 51% did not receive any financial education in high school
- 43% are not tracking their spending at all
Academic success at the expense of financial literacy is very short sighted. To run corporations, CFOs need to know more than a little about finances, and nothing less should be expected of individuals expected to manage their day-to-day finances.
There are a few ways that things can be turned around; however, we cannot solely rely on anyone else to make the change. Parents must be willing to educate themselves, even if they lack full understanding of money themselves. When parents learn, they can pass the knowledge to their children, and give them an opportunity to put it into practice.
Some of your seemingly mundane errands can serve as a financial learning experience for your children.
When you go to the bank, bring your children with you and show them how transactions work. Ask your banker to explain how the bank operates, how money generates interest, and how an ATM works.
Discuss how your pay is budgeted to pay for housing, food and clothing, and how a portion is saved for future expenses such as their college tuition or retirement.
The Grocery Store
Explain the benefits of comparison shopping, coupons, and store brands.
Explain the many ways that bills can be paid: over the phone, paper or by check, electronic check or online check draft. Discuss how each method of bill pay takes money out of your account. Be sure to cover late penalties, emphasizing the importance of paying bills on time.
Using Credit Cards
Explain that credit cards are a loan and need to be repaid. Share how each month a credit card statement comes in the mail with a bill. Go over the features of different types of cards, such as debit and credit cards.
Talking to your kids about finances
If your finances are currently in disarray, be up front about it.
The easiest way to teach your kids how not to manage their finances is by pretending you have it all together when in fact you don't. If you're in debt and living beyond your means, it's time to eat the humble pie and admit you've gotten yourself into a financial bind. The key to being upfront is making sure you're going to put in the work to correct your situation. Don't just tell your kids you're in debt or you've mismanaged your money, and then do nothing about it. Explain to them how some financial problems can be prevented and how others can be remedied. Tell them where you went wrong, what you are doing to fix it, and how they should be cognizant of the lessons you have learned as they develop their own money behaviors.
If your current situation is solid, pass the knowledge forward.
This comes with one caveat: there's no need to tell your kids if you are monetarily wealthy. It's not their money, and if you have an inheritance for them, they don't necessarily need to be privy to this information until it's time for them to receive it. What you should do is make sure they understand how you worked hard, saved, invested, and lived well within your means. By teaching the principles involved in achieving wealth, you'll be equipping them with the tools to acquire it on their own. There's no need for them to expect any handouts from you or anyone else if you've taught them about money.
Start early and practice often.
As soon as your kids are old enough to ask you to buy something for them, they are old enough to understand the principle behind money. They have enough sense to know they don't have any money to get whatever it is they want, which is why they came to you. They have watched you pull out your wallet on numerous occasions as you've exchanged money for goods and services. What they might not have realized up until this point is that your money doesn't magically appear in your wallet. You've had to work for your money. Once your child realizes a want, give them an opportunity to earn money on their own and save up for their purchase. By the time they become expensive teenagers, the practice of earning and saving will be second nature to them.
Have a year in review before you send them to college.
This step is important because this will probably be your last opportunity to make sure they have a good understanding of money before leaving home. A year before they go to college, make sure they know the basics of personal finance which include saving, budgeting, and living within their means. You can do this by having them create a budget for their senior year expenses and other small expenses you've deemed appropriate for them to handle. They can use wages earned, allowance, or a combination of both. The key is to put them in charge of their budget and allow them to learn from any mistakes they might make while they are still under your supervision.
We can wait for the government to require financial literacy be taught in all schools, or we can be productive and make sure our college students aren't graduating magna cum laude with no idea how to manage their money. We can encourage our students to be scholars, doctors, and football players, but all that encouragement will be in vain if they are successful but don't understand personal finance.