Research by the Council for Economic Education (CEE) indicates that young adults who receive formal financial lessons as part of their school curriculum are more equipped to feel in control of their financial lives, and to master basics like how to manage credit and how to save money.
The CEE data also reveals that 60% of students who have taken a personal finance class use a budget, compared to 46% who have not had formal money lessons. Despite the importance of financial knowledge, just 17 states currently require high school students to take a financial literacy class.
As a result of the lack of a formal personal finance curriculum, the duty of raising financially literate kids falls on parents. While concepts like saving money and spending less than one earns may seem like easy lessons to instill, there are some right (and wrong) ways to communicate these messages.
Avoid the following common mistakes that well-meaning parents often make to help ensure your kids absorb the financial messages you intend to send through your words, actions and financial habits.
Mistake #1: Underestimating how much young kids can understand about money.
The PBS NewsHour reports that kids can understand concepts like exchange, choices and value as early as three years old. Further, the attitudes they form until about seven years old can influence how they view their relationship to money throughout life. A task as simple as asking a young child to help you put loose change into a savings jar can communicate a concept like value, and that money is currency that's worth respecting.
Mistake #2: Not giving kids a chance to learn the value of hard work.
Kids see parents go to work or school each day – but they don't understand the value of hard work (or how it impacts your family's lifestyle) if they cannot experience it.
Explain what your job entails and what it offers, in the sense of financial security for your family, mental stimulation, and the emotional benefits that having a purpose, contribution to society, goals, and responsibility offer.
Let kids "own" one or two basic household responsibilities beginning when they're about four years old (like putting dirty clothes in a hamper or dusting) to bring these abstract concepts to life. The Washington Times cites a study that has shown a direct correlation between children who have such responsibilities and their future professional and personal success.
Mistake #3: Forcing kids to save money.
Parents who force kids to save may unintentionally teach that money is something to fear losing. Help kids feel empowered by giving them choices about what they do with their money, and they'll soon realize that financial decisions are essentially a series of trade-offs.
Encourage them to save a portion, spend a portion (if they express a desire to buy something), and gift a portion to a charity – but make it their choice. They will learn how their financial choices can lead to different outcomes.
Mistake #4: Including shame in your money lessons.
Parents may not intend to shape kids' financial attitudes when they utter phrases like, “We can't afford that," or, “I work too hard for my money to spend it on that," in regard to a child's request, but such phrases can create negative financial attitudes.
Instead, choose words like, "Maybe we can make a better choice," to communicate that the earner is in control of how they spend their money.
Mistake #5: Not using cash in front of kids.
The banking world is now based largely on digital and non-paper transactions, but kids can't see the impact that spending or saving has on money when this is their only experience with purchases and payments.
Make it a point to use cash some of the time, so kids can help count out the correct amount of money at the point of sale when it's time to pay. They'll be able to see that items cost money – and that less cash remains once a purchase has been made.
Mistake #6: Not explaining how card transactions work.
If you use a debit or credit card frequently, invite kids to help check the online balance, review paper statements or help you pay the bills. They may not grasp the concepts entirely, but kids as young as seven can understand concepts like addition and subtraction.
Mistake #7: Not letting kids shop with you.
Your shopping trips may go faster without kids in tow – but they're an invaluable opportunity to teach lessons like how to determine value, make choices and distinguish wants from needs.
As Psychology Today notes, financial acumen isn't limited to understanding how to use financial products; it requires that kids know how to resist the constant barrage of media and marketing messages intended to influence their buying decisions. In this regard, the cereal aisle may be the ideal classroom.
Mistake #8. Neglecting to teach kids to give back.
People feel joy when they give money away to a person in need or a cause – and the amount needn't be extravagant to reap the emotional payoff, according to Reuters.
While making donations to charity may seem secondary to teaching kids how to earn and manage their money, the two go hand in hand. You'll be raising kids who know how to be generous, and who realize that the pursuit of money and material possessions in and of itself is not the secret to happiness.
Mistake #9: Not talking about money in front of your kids.
The financial attitudes and conversations a family has about money can make a lasting impression on a child's financial behaviors as an adult, including compulsive shopping or saving, and feelings of anxiety and fear about money. Be mindful of what kinds of financial information your kids are old enough to handle, but don't make the family finances a topic of conversation that feels off limits or shameful. Psychology Today points out that your own financial mistakes – whether it's not contributing to retirement early in your career or racking up too much credit card debt – can all be wonderful teachers for your kids (and yourself).
Mistake #10: Not teaching kids about taxes and the cost of debt.
Once kids are old enough to have a job, they need to understand what taxes are and what taxes mean in their financial lives. And, as more young people participate in the gig economy, the responsibility for paying taxes shifts away from the employer and onto the individual.
While kids can't open a credit card until they're legal adults, you can teach them how credit card debt works long before then. Show them your statements, point out charges, and explain how the cost of a purchase increases, based on the card's interest rate, if not paid in full.
Correcting even a few of these 10 mistakes can be critical to shaping how your children will feel and behave around money as they become young adults. By sharing and learning with your kids today, you're making an investment in their future financial well-being.
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