As good parents, we strive to give our children the best opportunities for success. However, when it comes to understanding how money works, many parents are doing a miserable job. National surveys conducted by the Jump$tart Coalition show that the majority of high school seniors fail the test when it comes to even simple money skills. Why?
Some parents undoubtedly feel inadequate to teach their kids about money because they struggle with their own finances. Others may think that money management skills are obvious and easy. Perhaps others simply want to shield their children from concerns about money and other harsh realities of life. Finally, there are perhaps a few others who wish to maintain one of the last vestiges of control they have as their kids careen through their teenage years.
You do not have to be a financial wizard to pass on sound money skills to your kids. If you ask me, you are doing them damage if you do not teach them how to manage their money. So, even if you feel like you need to learn more before attempting to help your kids become money wise, here are some sound principles that will help them stay on the healthy side of their wallets for the rest of their lives. You may find yourself learning along with them.
Money comes from work, not the ATM. Unless you come from a long line of super wealthy people, you probably have to work for the money you get. It does not magically appear out of cash machines. However, for most kids, the experience is the opposite. They have not had to work. All they need to do is ask. Kids really benefit from understanding that Mom or Dad, most likely both, have to work very hard for the money that that the family spends. Someday, they will have to go to work to get their own money. Help them understand that doing well in school will help them get a better paying job.
As kids get older, it is all right to exchange cash for extra work. Offer them opportunities to earn the money they need for the things that they want. It’s not good to pay them to do things that they will have to do for free for the rest of their lives like make their beds or clean up their rooms. It certainly wouldn’t hurt them to wash the car or cut the grass for a little cash.
You can’t have everything you want. We have only a limited amount of money every month. After we use that money to buy something, we have less money to spend on other things. Consequently, the number of ways we can choose to spend the remaining money is reduced. If we use our money to buy candy today, we may not have enough left to go to the movies tomorrow. We should think about and plan how we are going to use our money before we start spending it.
When kids are learning to manage an allowance, tell them how it is to be used. Give them financial responsibility for entertainment, clothes, music, cosmetics whatever they spend money on. Avoid constantly bailing them out of tight money situations if or when they overspend. They might miss a movie or two but they’ll learn how to manage.
Buy the stuff you need before you buy the stuff you that you want. Since we have limited amounts of money, some of the things we buy are more important than others because we need them. When making a plan for spending our money, we make sure we buy the things we need before we start spending money on the things we want. We buy school supplies and clothes before toys and candy. Mom and Dad do this as well. We make sure the rent or mortgage is paid before we start spend money on a vacation.
Some people have more money than other people and consequently, they have more stuff. Perhaps they are paid more for their work or they work more hours than others. There will always be other kids with bigger, better, newer things. Children need to see those differences and learn how to cope with them. Having more stuff does not make one person better than another person. It is all right to have less than someone else. If we have more that others, we should share.
Sharing is fun. If we have stuff that other people do not have, we can share it with them and enjoy it together. Part of the joy of owning something is sharing the experience of using it. Owning a barbeque or big screen television is more fun when we invite family and friends over to share them. Sometimes other people will have things that we do not have and they might like to share them with us.
We save up to get bigger stuff. When we do not have enough money to buy something we want today, we can decide to not spend our money on other things until we have enough to buy it. Being willing to sacrifice other things and save perhaps for a long time, just shows us how much we really want that expensive item. Sometimes, after all the sacrificing and saving, we realize we really did not want the item as much as we thought we did and we do not buy it. This kind of experience helps us be more judicious about purchases in the future.
Help your children make these kinds of choices and follow through with the denial and the reward. If they choose to give up a toy or a treat to help get something bigger later, let them make the sacrifice. You may frequently have to remind your children of the choice but let them make it and stick to your guns.
Borrowing makes things cost more. If, instead of saving, we borrow money to buy bigger stuff sooner, we have to pay more because the person lending the money gets something out of the deal. Banks, credit cards and even parents can charge interest. We may have to work a long time to pay the money back. That money could be spent on other things that we must now do without because of our debt.
Many parents understandably have difficulty charging their children interest but if you allow them to “borrow” against their allowance, you can make this idea stick by allowing them to experience what it is like to do without until their debt is paid.
Generosity has its limits. It is good to be generous with others. However, we may be hurting our family if we spend or give money that we need in order to be generous with someone else. When we really want to be generous and that generosity requires a sacrifice on our part, we should only sacrifice things we want, not things we need.
Charity and helping out the less fortunate is a prevailing cultural norm in America of which we should be rightfully proud. Americans are the first to send help in a disaster. Our children, however, need help keeping generosity in perspective.
It is also important to help them understand that not everyone manages their money as well as we do. While we like to be kind and generous, we cannot make up for the lack of others when it comes to managing money. If our friends spend all their money on ice cream, we shouldn’t take money out of our savings to pay their way into the movies.
Saving is automatic. We save because that is what we do. Saving for the future should be a habit. Ten percent of everything we earn should automatically go into the bank. We do not need to know what we will buy with it. We do not need to know how we will spend it. We just do it because that is what we do with money. The day may come when we really need that cash and when we do, we will recognize it and be glad of our savings.
Advertising is not real. When kids see commercials for new toys or products, they really want the feeling or the fun those items appear to bring to the kids in the commercial. It is good to discuss with your children how much fun they would really have with that item. The kids in the commercial are actors. They are working and being paid to have fun with that product. Would we have as much fun? We buy something because it will meet our needs or we will enjoy it, not because kids in a commercial appeared to have fun or other kids at school have one already.
Even if your children grow up to have seven figure incomes, money skills will be the key to their financial security, success and even their self-esteem. No matter how much they earn, they will have learned skills that will help them be happy and get the things that they want.
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