Teaching children about finance, Pt. 1
Zuraw Financial Advisors
High school is too late to start teaching finance. Before they even get to kindergarten, kids receive thousands of indirect lessons about money by observing their parents at the bank, grocery store, shopping center and home. Research suggests that children are much more receptive to learning financial concepts from age 8 to 12.
Start financial education sooner at home and at school, look for everyday opportunities to slip in money lessons. Explain what happens when you pay with a credit card and that if you do not pay in full, you will be charged more. Explain the concept of taxes paid to the government when the garbage collectors pick up the trash.
Just how hard is it to talk money with your kids? A 2000 Charles Schwab survey found that most parents preferred talking with their teenagers about drugs to talking about money and investing — although both topics beat out discussions on sex.
In a study of college students, one striking similarity among those who had good financial skills was found. Nearly all said their parents had gotten them into the habit of saving as young children. Make your kids put part of any money they get or earn in a savings account that pays interest – high enough to have an impact to encourage them to save.
A study by Lewis Mandell, a leading scholar in the financial education movement, found that only 36 percent of the students who had received an allowance as a child described themselves as good savers versus 52 percent of those who hadn’t received money on a regular basis. In the child’s mind, knowing they’ll get money every week no matter what they do removes an incentive to save.
The problem may have less to do with allowances themselves and more with how they are administered. Set goals, not doles. Discuss what they are expected to pay for and what they must save to buy. Try a weekly schedule in elementary school, biweekly in middle and then monthly allowances for the ones in high school. The hard part is not bailing them out when they run out of money – so stick to your plan.
Saving is a behavior best learned by doing. Emphasize the importance of regularly putting away part of their allowance, gift money and any income they earn from summer or after school jobs.
Talk to your kids about money. Parents need to have non-judgmental conversations with their kids about money that do not end up in an argument.
Teach your kids about credit cards before they get to college. A study by Nellie Mae, a prominent lender of educational loans, found that the average credit card balance of college students had increased to $2,748 and graduate students carried an average balance of $4,776. Almost 10 percent had credit card debt greater than $7,000. Monopoly contracts exists between credit card issuers and universities for the exclusive right to market Visa and MasterCard to students, alumni and employees and issue credit cards with the university’s name.