Parents who grew up with stable career and workplace options need to make sure their children are competent money managers before they leave home. "Financial rules have changed dramatically over the past 20 years," said financial expert Dara Duguay in “How to Help Your Kids Live as Well as (Or Better Than) You” by Diane Harris on Parenting.com (June 2009). "When today’s parents were kids, they couldn’t get a credit card unless they had a steady job, they expected that job to last for life, and they didn’t have to manage their own retirement funds. It’s a different world today."
Now, new generations of adults move from job to job, credit card spending is the norm, and navigating the financial roadway of their lives requires more personal responsibility than reliance on pensions and corporate benefits. Parents have a new challenge to take what they've learned about surviving in a changing economy and pass those lessons to their children before they graduate from high school.
There are a number of strategies that parents can utilize to develop smart money habits. Any number of these will give children a head start on learning to save money and make good decisions about how to spend and manage their resources.
Introduce Concepts Early and Reinforce Often
As soon as they can count to 10, talk with children about where money comes from, how it is used, and how important it is to save. Save coins in a jar on a daily basis and designate the fund for a special purchase, a trip to the movies, or anything the family wants to do together. Start an allowance as soon as children can help with basic chores. Consider payment for service ($.50 for setting the table, $1 for emptying the trash) rather than a lump sum to reflect the fee-for-service economy we are transitioning into. Start a savings account as soon as children begin earning money and set some basic rules about how much they should save.
Use daily money transactions as learning moments. Children should know that adults pay bills such as mortgages or rent payments, car payments, credit cards, etc. Children should also understand that adults have to save up for vacations and other big purchases. Shopping trips to buy school supplies, clothes, or Christmas presents are great ways to teach budgeting, how to shop for bargains, and comparing products.
Match savings or provide other incentives, such as offering to add value to a purchase (buying a video game if the child saves enough for a video game system. It will help prevent diversions from tempting them to spend the money early.
Let Kids Learn From Financial Mistakes
Kids need to learn from their mistakes, such as spending it all on candy and soda instead of that cool CD they are saving for. Give them room to make mistakes and then use them as a discussion tool. "The financial world forgives the mistakes of children," explains Lewyn M. Hayes, assistant vice-president at Crescent State Bank. "It's important that they learn by trial and error before they turn 18 and start making choices as adults." [1]
It's also important to encourage entrepreneurship at every opportunity. Many jobs in the near future will be much more solitary and individualized than ever before. Workers will have to market themselves, work independently, and be creative and flexible. Babysitting and yard work are perfect first ventures – parents can help their children create business cards or flyers and pass them out.
Turn children on to investing. Watch stocks of companies that interest kids, such as Mattel, Disney, or Nintendo. Check out sites like The Stock Market Game and games like Cash Flow by Rich Dad for ways to introduce investing and building portfolios. The more they learn before they leave home, the more successful they will be later in life.
Training Teens to Use Money Wisely
Once teens begin working (babysitting or a workplace job), they should open a checking account. It is important that they learn to manage money through bank transactions before they leave home. Parents should help them set goals and simple rules for spending and saving from jobs and/or any entrepreneurial activities.
The most important tool for teaching teens how to manage money is making them save for their own big-ticket items. When they begin working regularly, have them take over their cell phone bills. Drive them to work while they are learning to drive and make them save at least half of their paychecks so they can buy their first car when they get their license. Parents can even co-sign on a small car loan to help them build credit. The high school years offer many opportunities for teens to take personal responsibility for the things that they want, and its their parents' job to include financial training as they prepare for college and careers.
Preparing children to be money-savvy adults is a lifelong process and one that can be enjoyable and creative. The trick is to start early, involve the family in money-related activities, reinforce good spending and saving habits, and find learning opportunities so children can experience money management for themselves. The end result will be young adults who can handle their own finances and make good choices about their own spending priorities as they start families of their own.
Those who find this article useful may also like to read Teaching Kids About Money, Money Management for Kids, Ten Money-Making ideas for Kids
References:
Harris, Diane. “How to Help Your Kids Live as Well as (Or Better Than) You” Parenting.com. June 2009
[1] Hayes III, Lewyn M. Personal Interview. Holly Springs, North Carolina, July 9, 2009.
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