By: Stephanie Mackara
Most of the messages and promotion of financial literacy focus on adults and specifically statistics about our nation’s savings rate, or rather lack of savings rate, towards retirement. I choose instead to focus on our children — because I truly believe that teaching children to manage money is the gift of a lifetime. I grew up with a father as a banker and a mother who did not work outside the home and we never, ever, spoke about finances. Growing up in this environment I didn’t think much about money, how to spend, save or value it... that is until I graduated from college burdened with both student loan and credit card debt! It has taken me years to unwind these bad habits.
We must embrace our role as teachers of money management and make sure our children are taught early and often. Our schools, at all levels, woefully under prepare our children for money management, and often as parents we lack the time and the resources to teach our children. So, my hope is that this article will give you some basic tools to start this important dialogue.
No matter your child’s age, these three concepts are critical to master:
Understanding the Difference Between Needs and Wants
There are every day opportunities to teach this concept. When you go to the store and your child asks to get a new game, pair of jeans, iPhone cover or a pack of baseball cards, or anything in the checkout line within arm’s reach—instead of saying “yes” to appease or “no” and deal with the resulting drama---simply ask “is that a need or a want?”. This simple question will cause your child to pause and actually think about the purchase. My guess is 9 times out of 10 the answer is want. If the answer is a want, you may still choose to purchase the item for your child, however you have planted a seed about the value of things and this will begin to prepare your child for making good spending decisions in the future.
Prioritizing and Making Good Spending Choices
When you take children to stores or shop online, explain how to plan purchases in advance and make price comparisons. If you are looking for a new TV or home appliance, do your research and make your kids part of the process. In the case of your child’s “want”; instead of instant gratification encourage them to do their research. Kids are no strangers to technology and here it sure comes in handy. Show them how to check for value, quality, warranty, price comparisons and other consumer reviews. Have them research the item before buying it. This will do one of two things: it will either squash their interest and eventually their desire for it will fade away or it will give them the tools to make a smart, informed decision about their purchase. Spending money can be fun and very productive when spending is well-planned. Encourage them to use common sense when buying. This means doing research before making major purchases and waiting for the right time to buy. This lesson also teaches core foundational investing principles.
Understanding the Consequences of Their Choices
Unplanned spending or impulse purchases, as a rule, usually results in 20-30 percent of our money being wasted. Often because we failed to do our research or we attached no value to a “thing” and it simply goes into a pile of stuff. Whether your child makes a good or poor spending choice, they can learn from it. Explaining why something didn’t work like it was expected by showing your child customer feedback reviews that discuss the poor quality of an item, or showing them how comparing prices could have saved them money — all helps to reinforce advanced planning. You can then initiate an open discussion of spending pros and cons before more spending takes place.
Once these lessons are learned, you can begin goal setting with your child. Young or old, people rarely reach goals they haven't set. Nearly every item children ask their parents to buy them can become the object of a goal-setting session. Such goal-setting helps children learn to become responsible for themselves. A great start to goal setting is the Save, Spend, Share concept where children learn to budget their money, equally across these areas. Learning this and practicing this will develop strong financial practices and lead to thoughtful, disciplined investing and saving as adults.
You may be surprised at how resourceful and responsible your children are when given the opportunity to handle their own money. Other benefits include increased bonding with your child by discussing topics that are relevant to their everyday life and future plans. And finally, you may find that your own financial habits improve while helping your children get on track!
Stephanie Mackara is a Wealth Advisor at Charleston Investment Advisors. She has two decades of experience in financial services and investment management. She has a professional background in financial services and an academic background in both Psychology and Law.
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