How many people have heard of this scenario? A young adult gets straight A’s all through high school, great grades in college, finds a great job and then is bankrupt by the ripe age of 24? Or, what about those lottery winners – many of whom are fairly intelligent folks – who end up blowing their millions and end up destitute a few years after cashing in on the winnings? It makes you wonder how some can be so smart, yet be so dumb when it comes to personal finance.

You also have to wonder why more information about personal finance and financial security, which are huge elements in life success, aren’t taught in school systems as readily as the common classes of math, English, literature, science and social studies. Let’s face it. Your high schooler may be able to remember the dates and names of every dead explorer who sailed the ocean blue, but that information isn’t going to help them buy a house or own a car. And it certainly won’t be the information they need to put groceries in their refrigerator.

Children spend a lot of hours in school learning facts and lessons that are supposed to help them live a successful and satisfactorily life. And yet, so many people in this world have no idea how to manage money. Truth is that educating children about money is as important as lessons in math and English. And since parents cannot depend on school systems to provide this learning, the duty falls back on the parents.

What most often happens, is that kids grow up in the school of hard knocks and realize too little too late that they aren’t equipped to deal with money. Then, suddenly – you have young adults (and older adults) who are in a financial down spiral that they cannot get themselves out of. Why? Because the simple things, like balancing a check book, realizing needs versus wants, budgeting, saving and spending responsibility are not things that they understand.

If you ask a child where money comes from they will likely rebut ‘Mom and Dad.” If you ask them where their food comes from they will answer, ‘The Store.’ While these answers may be cute and sort of correct at the moment, the truth is that all things to have in this world come from money. Without money, your child wouldn’t have any of the things or commodities in life that they simply take for granted. Even very young children have the ability to understand that the things in their life are a consequence of money. And that money is a consequence of hard work. As an adult, it’s almost sickening to realize that you have spent an entire day (or more) working to earn enough wages to keep your electricity on. But it is this exact knowing that enables you to keep your financial boat afloat. Not allowing children to understand this – at the appropriate level for their age, is a huge disservice to a child. Simply chanting the aged old adage of “money doesn’t grow on trees,” is simply NOT enough to teach children about the value of money.

A 4 year old should be able to understand that the toy they want on television costs money. And this same 4 year old should be taught age appropriate ways to ‘earn’ this money. A 10 year old, should be taught to budget the money that they earn from allowance to get the things that they want. And when they spend all of their money on a frivolous toy they should be able to wallow in the muddy wallow of ‘being broke,’ long enough to understand the lesson. In other words, parents need to start early in life allowing children to be responsible for their money and for their spending habits. Which means not constantly handing over money as if it really does grow on trees, or bailing kids out of financial problems. If your child wants a toy that costs $12 and they only have $10, instead of handing them the extra $2 – make them earn it.

Of course, many people learn about money from their parents. One study out of Harvard shows that children who grow up in homes where money is a major sociological issue are 7 times more likely to have the same problem for themselves when they are adults. The study also indicates that parents who stress savings, and who are articulate with their kids – even involving them in family budgeting – are more likely to have financial security when they are adults. Bottom line according to Edward Powell, the chief consumer officer at Lending Tree is this. “As a parent, the best way to teach a child about finances is to be a role model!” This means showing restraint with money yourself, and making sure that your children are privy to understanding how much you respect the value of a dollar by seeing you saving, using coupons and comparison shopping.

Perhaps the most important economic lesson that your child needs to learn is how to deal with limits and boundaries when it comes to finances. And this too, is taught by example. When children learn to see that money is not an endless resource and that it must be managed wisely in order to do and have the things they really want, they will develop a healthy respect for the dollar.

Forbes Magazine offers this advice when it comes to teaching your children about money!

  • Take your children shopping with you! Make sure that you teach kids how to shop wisely using coupons and doing price comparisons, even on everyday items. Point out how many dollars you can save, and empower them to help you find great deals and research before buying.
  • Be a role model. Make sure that your kids see you saving money, and thinking about purchases. Make sure they realize that you don’t just go out and get everything that you want, and that you too – live happily within financial limits and boundaries.
  • Save! And teach young children to save! Make sure they have a penny jar, bank account, and encourage them to save their money on a regular basis so they can realize the advantages that saving money provides for them in the long run.
  • Encourage employment. Make sure they see how the system of taxes works. Make them earn money rather than just give them money. Refuse to simply give children money for their basic needs.
  • As soon as they are old enough, open a checking account for them so they can see how debit cards and check privileges work. Make sure they are responsible for balancing and budgeting their money.
  • Teach credit worthiness.
  • TALK about money. Far too often, money and finances is a taboo ‘adult only’ subject between parents and children. It shouldn’t be. If you hide money issues, or don’t share with them what you know they won’t be prepared for adulthood.

No matter how old your child is, you need to start educating them about money today. Don’t depend on school systems to provide this information. Far too often, the lessons are learned when it’s too late and bankruptcy becomes imminent.

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