Kids today are woefully unprepared for many financial decisions they will have to face. To prove this fact, ask any high schooler what a budget is. I’m willing to guess that about half will stare blankly at you as their eyes glaze over, and the other half will say something along the lines of, “It’s something Mom and Dad fight over all the time.”
Part of the problem is that some parents aren’t sure how to approach the subject with their kids, so they just avoid it. They may not be very good with money themselves. Other parents may assume kids will learn important lessons about money outside the home. Whatever the reason(s), kids aren’t getting the financial education they need.
LearnVest lists 9 money lessons financial experts teach their kids. Obviously we’re not all financial experts, but I want to talk about a few of these I believe any parent can handle:
2. Money is about making choices
Every time we spend a dollar we are making a choice. We are choosing to trade our life energy and resources for a product or service we hope will enrich our lives. By using our money for Item A, it means we’ll have to do without Item B for the time being. Also, by choosing to buy Item A, we’re choosing not to invest that dollar for the future or to give it to charity. This is why it’s so important to evaluate our needs and wants, put them in proper order by making a budget, and only buy our wants after our needs are taken care of.
3. Delaying gratification can pay off
Let’s say you really want to buy an item costing $200, but you only have $100. You could buy a $100 item that you like or you could wait until next month, save up the extra $100, and get the item you really like. In order to do this though, you have to go a month without any items. That takes discipline and a willingness to delay gratification until you can afford the item you really want. Alternatively, you could invest that $100 at the beginning of the year and have 7% more – $107 – at the end of the year given a 7% interest rate. To get that extra seven dollars though, you have to wait all year. Is it worth it?
6. Work for what you want, and it will mean more
For my 17th birthday my parents bought me a used car. Because it was my first car and it meant I didn’t have to ask my parents for rides anymore, I was pretty excited. I took care of that car and enjoyed having it during my senior year of high school. My parents sold it when I was in college and I went almost seven years before I had my own car again. At 24 I bought a car by myself for the first time. I still drive this car almost every day. Even though it’s not the newest or nicest car out there, the sense of accomplishment I get when I’m behind the wheel is greater because I paid for it myself.
8. Budgeting is a family affair
Do you involve your kids when making financial decisions? If not, you’re missing out on a chance to teach them how you make decisions about where your money goes and why. When they’re old enough to earn money doing chores around the house, get them a piggy bank like this and require that a portion of the money goes into each of the four slots: save, spend, donate and invest. Explain the importance of each category and get them excited about saving.
9. A little goes a long way
Just a few examples set by financially responsibly parents can set kids on the right track. Show them your retirement accounts and explain that a portion of every dollar you make is saved for when you choose to not work anymore. Show them what you’re saving up for whether it’s a family vacation, new furniture, or Lasik. Explain that by waiting and saving up a few extra months you can avoid credit card debt and instead rely on savings. If you donate to a charity, explain why.
Always look out for opportunities to teach your kids about money and finances. You’re the best example they have.
Photo by enemyofdebt.com