Parents and guardians have an important influence on their children. The lessons they offer can shape their children’s lives in both positive and negative ways. Parents teach lessons that involve good manners, work ethic, self-discipline, and the like. But money management and financial literacy are crucial skills that should rank high on every parent’s list of skills to impart.
Many people may expect that kids will pick up financial skills in formal classroom settings, but that’s not usually the case. Our friends at the NFCC have completed financial literacy surveys, and they show the #1 source of knowledge about personal finance comes from one’s parents. That means moms and dads need to teach good financial skills and habits, as their kids are not going to learn those lessons elsewhere.
Those NFCC surveys we mentioned also show that nearly half of people don’t give themselves an A or B grade when it comes to financial knowledge.
With so many people feeling they lack the necessary knowledge to manage their own personal finances, it’s no surprise their children aren’t getting the education they need either.
Financial illiteracy is a cycle that can be broken. If parents feel they don’t have the skills they need, then it’s time to fix that. And in the process, they can pass those skills down to their kids.
There are free sources of online learning, and they’re available at any time. One can read an educational guide, take an online course, or chat with or call a financial coach who can answer questions and offer expert guidance.
Here are some essential ways to help kids gain financial knowledge while helping one’s self:
- Budgeting: Learn about budgeting, and work to create your own written budget. It will include income, expenses, and goals. These are things your kids can have, too. Put them on an allowance and teach them how to save a portion of that allowance for goals, and to set aside funds for short-term expenses they might face. Make sure you teach them to put their budget in writing, and to write their goals down.
- Handling money: Kids need the experience of handling and spending money. They will watch how you handle purchases, so be mindful that they’re learning from you even when you’re not actively teaching them.
- Banking: Just as you manage your own account, guide your kids by setting up a custodial account for them. This will give them a place to store their savings and learn how banking works, while giving you some oversight over their finances. These are great tools that good banks offer to develop better future accountholders.
- Saving and interest: You can teach your kids how compound interest works using their custodial bank account; the idea is to impart on them the importance of saving early and letting money accumulate value over time. It’s hard for kids to see forward to retirement needs, but if they want to be able to drive when they’re 16, you can guide them to save up for gas & insurance money in advance.
- Credit and debt: You won’t want to get your kids started on credit card debt, but be sure to explain to them what it means when you use a credit card. They need to understand that credit transactions are a loan that must be repaid. You can also take some time to explain to them how credit reports work.
- Your child’s credit report: Speaking of credit reports, your kids may already have one. Credit reports aren’t limited to a particular age, and if your kids have ever been listed on an account, they may have a report. The CFPB (Consumer Financial Protection Bureau) offers more info in their article “How do I check to see if my child has a credit report?”
- Holidays: The holidays are a great time to teach your kids personal finance lessons. They’ll be saving for gifts and making spending decisions that you can oversee. There’s also a good chance to teach them to save any money they receive as a gift. Help them set savings goals so they can have an even better holiday season the next year.
- ID Theft: Security is important, and only getting more so every day. Your kids need to learn early to protect their finances and their data. Teach them to manage passwords and online logins as you help them set up their first email accounts. Kids today are very connected via technology; that’s a good thing in many ways, but means you have to be more diligent to help them avoid scams and identity theft and to protect access to their accounts.
No parent needs to be told that parenting is a huge responsibility. There are plenty of free resources available to make teaching financial literacy to your kids a bit easier. And there are professionals waiting to help you manage your debts, credit, and personal finances so you can provide for your family with fewer worries.
Remember, you can’t expect your kids to be good stewards of their money if you are not leading by example. And you don’t have to go it alone. Reach out for help today and get started on achieving financial freedom.