Money smarts you can share with your children.
You may have at one point in your adulthood said to yourself, “If only I knew more about money then.” Well it may be too late for you, but you can fix it for your children. Here are some easy to teach tips that will make a difference in their financial lives.
When they’re young show them the basics, the difference between something needed and something wanted. Discuss spending priorities; is something really needed for survival, work or school? Will it make life appreciably better, or is it just for fun and entertainment? Teach them to pay the most important bills and make the most important purchases first.
Determine your policy for an allowance and stick to it. Yo u need to consider whether household chores are expected in return, and what expenses the allowance is meant to cover. A fixed amount of cash will encourage thought before spending.
As your children get older, a part-time job can help them learn the rules and conventions of the workplace environment and how difficult it is to earn enough money to fund the lifestyle they currently enjoy. Work experience can indirectly encourage postsecondary education. They make the connection – more education equals more interesting work and, maybe, more money. Incidentally, a parent can explain this concept but it is internalized when it is learned at an unpleasant job.
Teach smart shopping skills. Encourage saving and planned purchases rather than spontaneous purchases. Show your children how to watch for sales. Let them see you walk away from a bad deal, when better pricing can be found elsewhere, or just doing without the item. Be comfortable saying “we can’t afford that” or “that’s not where we want to spend our money now,” so they will feel comfortable doing the same.
Parents need to teach credit basics long before their children go out on their own. Your children don’t need your permission to open a credit card once they turn 18. At a recent Wellesley College freshman registration, I noticed that the queue for the credit card kiosk was as long as the sign-up for English 101. We’re all doing a lot of online shopping, so prepare them for the process and place an emphasis on safety and security. Open up the bills with them so they can understand the interest charged on an unpaid balance, multiple interest rates, and penalties if their payment is late. If the credit card is set up for “emergency use” they need to have “emergency” clearly defined. Counseling on budgeting and monitoring spending and bill paying insures a healthy respect for the lifelong need to keep spending below income levels. This respect will also send a message “mom or dad is not a bank or an ATM.
Americans are typically not big savers. The habit of saving a part of every paycheck or allowance, making money available for longer term goals, has great value. Some children enjoy saving, they bank every birthday gift. Others need a bit of training and encouragement to forego the immediate reward to save for the larger long term goal.
Don’t be afraid to share real-life info regarding the family expenses. Children have no other way to know how much things cost. “Turn off unused lighting to save electricity” has no meaning unless you share the monthly power bill. Knowing some of the costs to maintain a household gives them an idea what it will cost to eventually have their own place.
Managing a vehicle or renting an apartment can be an oppor tunity to learn basic facts about various kinds of insurance. You insure what you cannot afford to lose. The cost (premium) is what you pay for that peace of mind and for replacement payment if a loss occurs. Homeowners, renters, auto, term life, all work the same way and are easy to understand.
Money can be a medium of help and charity. Many families make gifting decisions together. That way they agree upon amounts to be given to charities and ways they choose to volunteer their time. Some families work together on charitable projects such as Thanksgiving dinners for the homeless or Fresh Air Fund vacations for an inner-city child. Some families save loose change and decide together where to donate the funds. Generosity and giving of oneself is learned from others. Be sure to cover this one thoroughly because you will want to experience that trait in your children during your final years.
Once spending, saving, credit, insurance and charitable giving concepts are mastered you’re starting to see a financially responsible adult. Many a financial fiasco can be avoided with prior explanation, exposure and experience. Parents can launch their child into adulthood knowing they have equipped them with the financial tools they will need to succeed.
Elizabeth Loda and Steven Weber are investment advisors for the Bedminster Group, a fee-only advisor providing investment and financial counsel to clients in the Lowcountry since 1997. The information contained herein was obtained from sources considered reliable. Their accuracy cannot be guaranteed. In addition, this is not a solicitation to buy or sell any securities. Furthermore, the opinions expressed are solely those of the author and do not necessarily reflect those from any other source.