Think back to when you were 18 years old. Graduating from high school. Maybe preparing for college. Maybe looking for that first job. Excited about being an adult. Making your own decisions and being on your own.
How prepared were you to make wise financial decisions? How prepared were you to make any kind of financial decisions? Did you understand basic financial concepts like balancing a checkbook, how interest work, or creating a really simple budget?
My guess is that for most people the answer to that question is no. I think this is one reason why many young people struggle with financial matters early in life. A lack of knowledge can cause them to make poor decisions that dig a hole they spend years trying to climb out of.
Certainly, there are many factors involved, and education is just one of them. As parents though I strongly believe we have a responsibility to teach our children about money and how it works. I don’t mean they need to have a masters in economics before they leave the home, but you can make sure they understand basic financial concepts and activities.
The key to teaching your children about money is to be an M V P parent.
Model good financial behavior
The first and probably most important step in teaching your children about money is to set a good example. I strongly believe children learn far more by observing than they ever do by hearing. If you tell your kids that credit cards are dangerous if you run up a big balance, but they see you pull out the plastic whenever you want to make a purchase, guess which message will have more lasting effect?
You might say, but Bob, sometimes I don’t make the best decisions either. These can be great teachable moments too. When you do something kind of dumb financially, and we all do from time to time, share those stories with your kids. Tell them about your mistakes and let them see what the cost was to you both financially and otherwise. Often times those lessons may stick far more quickly than the good examples.
Verbally teach your children
In addition to setting an example, you also need to be intentional about teaching them. That doesn’t mean having weekly finance lectures at the dinner table. I believe one of the best ways to do this is by simply involving them when you make decisions or are performing financial activities.
Now obviously all of this needs to be done in an age appropriate way. A 4 year old won’t understand things in the same way that a 16 year old will. But you can gradually teach your kids over the years more complicated subjects as they grow and mature.
For example, with very young children it might just be a matter of teaching them that when they have money it is important to save some, give some, and then spend some. When your kids are a little older and you are balancing your checkbook or paying bills have them help once in a while. If you are writing a check, have them fill it out and then you sign it. If you are looking at buying a car, take your 14 year old along so they can learn how to negotiate. If you are meeting with your investment advisor or your insurance agent, take your 17 year old along and explain how those things work.
Lastly, it is very important to give your children opportunities to practice these skills in the safe environment of your home.
I like the idea of paying kids a commission for reasonable age appropriate chores they are made responsible for. This teaches them that money comes from work. If you work hard and do a good job you are rewarded. If you don’t work, you don’t get paid.
The other benefit of this is that as they then learn to give out of the money they have earned it has more meaning for them. If you hand your child a dollar to put in the offering plate on the way into church from the parking lot, they really aren’t much more than acting as a courier for your money. If on the other hand that dollar came from money they worked to earn, their character is shaped and molded.
As kids grow older particularly in the teens, it is good for them to have their own checking account that they are responsible for managing. Instead of buying their school clothes give them the money you would have spent on them. (As a parent you still hold veto power if they want to choose clothing that you don’t approve of.) Let them make decisions. They can buy one pair of designer jeans at the mall, or they can buy several pairs at WalMart. If they choose to blow all the money on a few very expensive items then they have to live with a pretty limited wardrobe. By the same token if they go to cheap and don’t get quality they might find their purchases don’t last very long. These are great real life lessons to learn at a young age.
Lastly, as a parent you will be highly tempted to bail them out when they make poor choices. Don’t do that. Let them feel the pain of their financial mistakes in a relatively safe environment. I’d rather they made a mistake blowing their entertainment budget on one item early in the month and not having money to go to the movies with their friends as opposed to seeing them buy a $50,000 vehicle fresh out of school and then be crippled for years by the payments. Let them make mistakes and gently help them learn from them.
Teaching your children about money is your responsibility
I don’t want this to lay a guilt trip on you as a parent. Nor should this feel like an overwhelming responsibility that you are completely unqualified for especially if you have struggled personally in these areas. Frankly, as parents we often face situations that we feel very unqualified for. Good parenting is hard to do.
Financial matters will affect so much of your children’s future. Take the time to teach them. Do your best to set a good example and when you fail help them to learn from your failures.
I think any loving parent wants their children to be successful. If they can learn to make wise financial decisions at a young age in the safety of the home, they will be much more likely to make wise decisions later in life when they are on their own and no longer have that safety net.
What steps have you taken to teach your children about money?
Photo credit: Digital Internet (Creative Commons)