Written by: Robyn Ulrich
Do you ever wonder about where you would be in life, if you had been raised with a strong personal finance education underfoot? Or perhaps you were among the fortunate ones to have a solid financial upbringing; do you ever wonder about where the state of our economy would be if more people had a better understanding and plan for their personal finances?
Pass the Kleenex
Like a lot of people, I was not raised in a household that taught me very much about money. To my parent’s credit, their own parents never taught them either and as the saying goes, “You don’t know, what you don’t know”.
I can remember my very first day at college freshman orientation. Booths upon booths of creditors, eager to help students build their credit history by offering a credit card. While good intentioned, I hope, I can’t help but wonder if they ever considered the ramifications of signing up financially clueless teenagers. Needless to say, I fell victim to the wonderful world of “free money” and high interest rates. It was a tough lesson to learn, and had I been given the tools to manage my financial life starting at an earlier age, I might never have found myself with a mountain of debt in addition to my student loans.
1. Pass the Awareness
The average household debt in America last year, was roughly $134,643. If you couple that with the amount you are paying in interest, it’s kind of a scary number considering the median household income for the US in 2015, was $55,775. From $1.3 trillion in student loan debt, to credit card debt averaging $16,048 per household, it’s clear I’m not the only one who has struggled to manage or understand money.
Although we can’t go back in time to educate our younger selves, we can certainly prevent future generations from repeating our own mistakes and even learn a little something along the way. The basis for a brighter financial future, starts early. It’s important to give our kids the tools to make good choices with their money, long before we launch them on a college campus to roam free with their credit cards.
2. Pass the Piggy Banks
So, how much earlier than college is the best time to teach your kids how to navigate through the complexities of personal finance? Well, let’s start with the basics like saving and spending:
Some experts suggest as early as age 3, is the perfect time to teach your kids one of the most important financial tools out there: delayed gratification.
If you’re brave enough to get through a toddler temper tantrum in the candy aisle, or are able to forgo that pair of shoes you really want, you’re already familiar with how challenging this concept really is.
A great way to turn the concept of delayed gratification into a positive feeling rather than a restrictive one, is by offering separate piggy banks. One for saving and one for spending and perhaps even a third for charitable giving, will give younger kids a visual way to understand how to separate their money to achieve a future goal without feeling deprived. They can see that by splitting up the money they receive, they can save for a future goal while at the same time having a little bit of money to spend sooner.
3. Pass the Motivation
Once kids have the ability to generate more than the few dimes they once found in their car seat, it’s time to build beyond the simple concepts of a separating their money into different categories.
Having the opportunity to earn money, whether that’s from allowance, babysitting or helping the neighbor shovel snow, kids can begin to learn how a little motivation can increase how much they have to contribute towards those different piggy banks.
Not only will they see how a little bit of elbow grease is an option for increasing their earnings, a simple exercise in investing can also put a motivating spin on growing their funds. For example, cash gifts received for birthdays or holidays can take on a whole new meaning, if they are given more choices. Instead of using their allowance or birthday cash to buy something now, offer to match 25% or 50% of what they were given if they wait a month. Get them used to having the choice to either spend right away….or to receive a larger benefit by waiting. Later in life this lesson can turn into the very real gift of compounding their savings in retirement and investment accounts.
4 Pass the Responsibility
As kids reach high school, and perhaps their first job, there’s no better time to introduce a checking account with a debit card, and perhaps even a joint credit card with a low credit limit of $200.
You might also consider helping them open a ROTH IRA as long as they have earned income from a job, to prepare them for a future that teens normally find too far in the distance to bother with.
Through teaching them the basics of balancing their new checkbook, monitoring their spending habits by analyzing monthly statements or using a phone app such as Mint, young adults can begin to understand the value of credit and how their choices today will affect the options they have down the road.
Although these steps seem relatively small, they are important building blocks that can create a strong foundation for your child’s financial future.
5. Pass the Tools
Unfortunately, awareness for a single day of the year won’t be enough to ensure our high school graduates will be equipped with the financial tools they need to be successful adults. Did you know that only 5 states require a finance course as a graduation requirement? If kids do not receive this essential part of education at home or at school, they will continue to be left on their own to figure it out. Generation after generation will continue to repeat many of the same basic mistakes.
Thankfully, efforts to improve financial literacy are indeed gaining traction. Although we are simply celebrating Financial Literacy Day, it is actually the full month of April and shows that people are starting to pay attention to a long overlooked need. More and more financial professionals, educators and corporations are filling the void by volunteering their personal time or creating websites, social media pages, and community programs to provide the resources necessary to assist everyone who may be navigating financial challenges. Other resources are springing up to help jump-start conversations with kids and teens before they learn bad habits.
The earlier we teach our kids about money and the more we talk about financial issues, the less uncomfortable it becomes, and the wiser future generations will be. Then, we will be able to pass them cake instead of Kleenex.
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