This is a guest post from Daniel Packer over at Sweating The Big Stuff. Daniel writes about negotiating, saving and conscious spending while attempting to maintain a high quality of life. To read more, subscribe to his feed or follow him on Twitter.
First of all, I’d like to congratulate Neal on his nominations in the Plutus Awards! If you haven’t done so yet, go vote right now!
Most kids don’t want to talk about personal finance. That’s because they don’t know that they will have to make lots of personal finance decisions in the future. They will have to decide how they spend their money, where they go to college and how much to save up for big trips. Talking to them now will help them a lot in the future.
Last Wednesday, Neal wrote about teaching your kids about money. He outlined two ways to teach kids, but I’d like to add a specific topic for three different age groups. It’s important to start young. The longer you wait, the greater chance you take of them having to learn about money through a crisis or third party financial intervention.
Teach Kids about Money
I have always been one to delay gratification, but I have heard my generation referred to as the “instant gratification” generation. Teach your kids about saving today and planning for tomorrow. They budget their money when they decide that they’ll see a movie at the expense of getting a new video game. Limit the cash supply and they’ll learn an important lesson about spending money wisely.
I didn’t know much about student loans until I realized that I would actually have to pay them back. I knew they were helpful, but I didn’t know any of the specifics until my junior year of college. All I remember is filling out a sheet for my guidance counselor and checking the box “money is not an important factor in my decision.” My father looked over this and nearly tore his hair out. I didn’t know anything at the time, and maybe I would have benefited from learning a bit more about student loans and my responsibility.
It may sound like a million years away, but describe the process you went through to plan for retirement, what you did wrong and what you could have changed. Let them know what your financial situation is and what they can expect. The most important lesson they can learn is that before they pay any other bills, they should pay themselves first. If they don’t put money aside early and often, they’ll have a longer list of mistakes to explain to their kids. Plus, if they are on the right track, you may end up in a nicer retirement home!
Have that Conversation Today
They may not be eager to learn at first, but it’s very easy to have a casual conversation about money. For the younger kids, ask them how they decide to spend their money. Then explain the impact of their decisions. For the older teens, describe what their responsibility will be when choosing a college and make it clear how it will be paid for. For the ones nearing or out of college, drill it home that planning now will save them a lot of worry in the future.
Learning from experience is great, except that the experiences sometimes aren’t pleasant. Do your kids a favor and let them learn from your experiences.
Neal here. The following posts may help you learn about money and thereby increase your ability to teach the youngsters. Enjoy
Mental to Physical Connection – This particular post really got me thinking. Well worth your time.
Is it OK to copy your kids’ DVDs? – This should make for a great discussion around the breakfast table.
Where does the money go when share prices drop? – That’s a question my kids ask me all the time…
Can plummeting real estate prices be good? Yes!
Tell me. So far…is there one single post that your kids wouldn’t learn something from? And I haven’t even gotten started!
Are Babies Expensive? – You could have fooled me…
Improve Your Memory – This will help out around test time.
US Historical Asset Class Returns – OK…this one might be a tough sell to those under age six.
Be a minimalist – A must for kids of all ages!
The Rise of the Woman Bread Winner – Suffragette City!
Ninja Turtles Do Battle With Debt – What kid doesn’t love the Ninjas?
One Car Family This Week – We went through this ourselves this week and found it wasn’t all that bad.
Giving People Handouts – Tell me this isn’t something you should talk about with the kids?
Downsizing Party! – This author is super interesting. Make sure to subscribe to his blog.
Saving Money – One of my favorite blogging buddies. Great reading.
Carnival of Personal Finance
Barbara Baker says
I have a business that teaches high school and university students basic money management, which requires the parents to attend. It is clear based on the outcome of the session that the parents themselves have limited or no understanding of basic money management so it is easy to see why the kids are not getting the life skill they need. Trying to get my program as part of the Catholic and Public school systems but it’s a hard nut to crack.
The Chinook Guy says
I totally agree with you that we have to start teaching personal finance to our kids at a young age.
I have a five year old son, and to teach him the basics we have opened a bank account for him. Every now and then, we would give him coins to put in his piggy bank. When he wants some toys, for example, I would gently tell him “lets see how much you have in your piggy bank” and see if you can afford something (and which one he would like- Toy A or Toy B, but not both)
By teaching him the basics, hopefully he would learn to delay gratification and at the same time train him to make good financial decisions in the future.
With a divorced and then blended family, it was very difficult to have a unified set of principles surrounding money. I have noticed that since my daughter has had her own job and is responsible for her own books, food, clothes, entertainment, etc., she has grown up pretty fast on her own in terms of money management. I think a few overdraft charges helped as well. On the other hand, her dad’s extreme “thriftiness” around money issues seems to have been counterproductive in certain ways.
I think not depending on your parents is a gradual process that should start in high school. By the time I was in college, my spending money was everything I earned over the summer. I love my parents for helping with tuition, and the rest is student loans, so I learn the debt lesson without the $160,000 trouble.
Financial Samurai says
Cool! Guest posting by fellow Yakezie Challengers! Most excellent effort.
I’d love to get a discussion going regarding thoughts on The Bank of Mom & Dad. When should we stop ever depending on our parents for money? 22 perhaps?