How many people have heard of this scenario? A young adult gets straight A’s all through high school, earns great grades in college, lands a fantastic job, and then finds themselves bankrupt by the age of 24. Or, what about lottery winners – many of whom are fairly intelligent – who end up blowing their millions and find themselves destitute just a few years after cashing in on the winnings? It makes you wonder how some can be so smart, yet so clueless 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 subjects 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 won’t help them buy a house, own a car, or put groceries in their refrigerator.
Children spend hours in school learning facts and lessons that are supposed to help them live a successful and satisfying life. And yet, so many people in this world have no idea how to manage money. The truth is that educating children about money is just as important as lessons in math and English. Since parents can’t always depend on school systems to provide this learning, the responsibility falls back on them.
What usually happens is that kids grow up in the school of hard knocks, only to realize too little, too late, that they’re not equipped to deal with money. Suddenly, young adults (and older adults) find themselves in a financial downward spiral that they can’t get out of. Why? Because the basics – like balancing a checkbook, distinguishing between needs versus wants, budgeting, saving, and spending responsibly – are concepts they don’t fully understand.
If you ask a child where money comes from, they’ll likely say, “Mom and Dad.” If you ask them where food comes from, they’ll answer, “The store.” While these answers may be cute and somewhat correct in the moment, the truth is that everything they have in life comes from money. Without money, your child wouldn’t have any of the things they 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 you’ve spent an entire day (or more) working to earn enough wages to keep your electricity on. But it is this exact knowledge 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. Simply chanting the old adage “money doesn’t grow on trees” is simply NOT enough to teach children about the value of money.
Teaching Children About Money
A 4-year-old should be able to understand that the toy they want on television costs money. This same 4-year-old should also be taught age-appropriate ways to ‘earn’ this money. A 10-year-old should learn to budget the money they earn from allowances to get the things they want. And when they spend all of their money on a frivolous toy, they should be allowed to experience the ‘beingbroke’ lesson long enough to understand its meaning.
In other words, parents need to start early in life, allowing children to be responsible for their money and their spending habits. This means not constantly handing over money as if it grows 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. A study out of Harvard shows that children who grow up in homes where money is a major sociological issue are seven times more likely to have the same problem when they’re adults. The study also indicates that parents who stress savings and are articulate with their kids – even involving them in family budgeting – are more likely to have financial security when they grow up.
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 understand how much you respect the value of a dollar by seeing you save, use coupons, and comparison shop.
Perhaps the most important economic lesson 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 that money is not an endless resource and that it must be managed wisely to achieve the things they truly want, they will develop a healthy respect for the dollar.
Forbes Magazine offers this advice for teaching children about money:
- Take your children shopping with you! Make sure you teach them 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 your kids see you saving money and thinking carefully about purchases. Make sure they realize you don’t just go out and get everything you want, and that you live happily within financial limits and boundaries.
- Save! Teach young children to save! Ensure they have a penny jar or a bank account, and encourage them to save regularly so they can understand the advantages saving money provides in the long run.
- Encourage employment. Make sure they see how the system of taxes works. Make them earn money instead of just giving them money. Refuse to simply hand over money for basic needs.
- As soon as they’re old enough, open a checking account for them so they can see how debit cards and check privileges work. Make sure they’re responsible for balancing and budgeting their money.
- Teach credit worthiness.
- TALK about money. Far too often, money and finances are taboo ‘adult only’ subjects between parents and children. It shouldn’t be. If you hide money issues or don’t share 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.
