They don’t teach personal finance in school, at least not until well after kids should know about money management. Therefore, you must take it upon yourself to show your kids the importance of making smart financial decisions ― even if you aren’t so good at finances, yourself.
Reports suggest that older teens, between the ages of 15 and 18, score an average of about 60 percent on personal finance tests, indicating kids are woefully under-prepared for their financial futures. Financial literacy is becoming increasingly important: the government is providing less financial aid, especially to older generations, and your kids should live longer than any generation previous. What’s more, the increasing choices associated with finances ― the plethora of banks, credit unions, investment firms, mortgage companies, and more ― emphasize the need for your children’s financial education.
It can be difficult to become a good financial role model, but ultimately it is unendingly beneficial for you and your little ones. Here are a few tips and tricks to help you demonstrate strong financial sense and help your kids for years to come.
Be Open About Your Financial Situation
It is natural to want your kids to admire you, and that desire often leads parents to build a façade of faultless invulnerability. You have likely already been tempted to hide your financial flaws from your little ones. However, perfection does not exist ― only dedicated effort does ― and the sooner your kids learn that, the better.
Your children should know the truth of your financial situation. Whether your savings accounts are rock-solid or your debt is slowly sliding out of control, you should explain to your kids exactly what is happening with your money. With this information, kids will learn that it always takes work to have money.
Explain All of Your Financial Choices
Once your kids understand the truth of the family’s financial situation, you can start to include them in money-related decisions. For example, when you build your budgets, you can gather your little ones and educate them about the monthly financial plan, including why you devote certain amounts to certain categories, and what you do when there is too little or too much at the end of the month.
Eventually, you will make more complex financial choices, like transferring your credit balance to a new card to avoid high interest rates or opening a new retirement account for tax purposes. Every change to your finances should accompany a discussion with your kids regarding why you chose that option. By doing this, you teach your children that there are many solutions to financial problems, and change is essential to building secure wealth.
Give Financial Responsibility
Allowance is one of the most divisive parenting tools: Some experts say an allowance encourages feelings of entitlement, undermines the establishment of responsibility, and fails to promote money management skills, and some experts say just the opposite.
At some point, you must give your children the opportunity to experiment with their own funds, and that usually means providing an allowance. Whether you tie the allowance to chores or give it regularly regardless of achievement or accomplishment is up to you. However, if your children do not demonstrate smart spending and saving with their new financial freedom, you have the power to restrict their allowances until they learn good money habits.
Few people enjoy the prospect of spending inordinate amounts of time with numbers, but the truth is math skills are unendingly useful, especially in financial management. Several studies around the world have found that early exposure to math is what allows kids to gain strong financial literacy. In particular, students in Shanghai scored the highest on financial literacy tests despite never having dedicated courses on personal finance.
To be a good financial role model, you must never discourage your kids from excelling in math. Even if arithmetic is your weakest subject, you must inspire your kids to get excited about numbers. Then, they will be well-equipped to understand complex financial concepts as they age.
Talk and Trust
Even if have a history of handling money poorly, you can instill good financial habits in your kids. By talking frequently with them regarding your finances, by trusting them with financial decisions of their own, they will look to you for guidance and learn to manage their money well.