Having a conversation with your kids about finances is no easy task, but it is important to educate your children on effective money management.
The importance of teaching such skills to children was most recently substantiated by a 2013 survey conducted by Junior Achievement. The results showed that teens who feel that they will be able to support themselves without parental assistance between the ages of 18 and 24 declined to 59% in 2013, noticeably down from 75% in 2011. Some of this is a result of general economic conditions and the challenging job-market. Other causes, though, certainly could be found in the lack of financial acumen within our younger generations. Hard lessons are being learned more and more as kids transition off of mom and dad’s payroll.
Equipping children to better understand and manage financial resources should start early and be done with patience and persistence. With a few simple steps, you may be able to give your kids an age-appropriate understanding of how money is used and why properly managing finances is necessary. Some considerations to make in establishing your financial “curriculum”:
• Start early. Talking with a 4-year-old about the intricacies of mutual funds may be a fruitless venture, but that doesn’t mean you can’t teach your kids about income and expenses and the need to save. As they get older, you will be able to move on to more complicated topics, such as taxes, insurance and retirement.
• Give them an allowance. Allowances can give your kids a concept of how finite money can be. This provides them with the experience of seeing money dwindle or accrue based upon their handling of it.
• Set up a budget. Help them create a budget. For instance, you can allow them to spend a certain amount of their money on entertainment, but the remaining amount should be set aside for savings and charity.
• Pay them. Consider paying your kids for at least one of their chores to show your children that money is not free and comes in exchange for hard work. In that same vein, once your kids start driving, it’s a good idea to remind them that gas isn’t free. There are few faster ways to teach the importance of being conservative with money and resources than to have your kids start paying at the pump each time they take the car out for a spin.
• Open checking & savings accounts. Help them create vehicles to facilitate their spending and saving. Walk them through how to balance a checkbook, the benefit of earning interest, and to be mindful of service charges and fees where applicable.
• Set the example. Put theory into practice by showing your children your own money-saving strategies at work. Take them grocery shopping with you and stick to a strict list to demonstrate successful budgeting.
• Talk often. Speaking with your kids about money is not a one-time discussion. They need guidance throughout their lifetime, even after they are adults themselves. Be an open ear for their concerns and offer advice when necessary.
The more prepared and educated your children are on managing their own piggy bank, the better their chances of making sound financial decisions. Not to mention fewer calls to mom and dad for money!
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