Finance management important for kids
With the new year starting next week, many are creating goals to achieve over the next year.
New Year’s resolutions aren’t exclusive to just adults. The new year is also a time for parents to teach their children how to set goals for themselves and how to maintain them.
Saving money is a goal many want to set for themselves and might be a good goal for children as well.
Neal Logan, a financial advisor with Edward Jones, said it’s important to teach children about finance management.
“Experts say only about 20 percent of young people leave home with what they call ‘financial literacy’ when they go to college or start their first job,” he said. “It’s so important to start early, probably earlier than most people think.”
Children as young as 4 or 5 years old can start to learn to manage money, he said.
“It’s about teaching young children about delayed gratification: I want this and I want it now,” he said. “If we can begin to teach them, well you can have that but not right now, that’s a huge financial road block for adults. Young people are spending money they don’t have. They’re introduced into credit at an early age.”
One way to teach children to manage their money is by giving them an allowance, but most parents are giving their children allowance in the wrong way, he said.
“They make a condition on work: if you do this chore, you get this,” he said. “You have to give them education along with an allowance. Teach children when you give them allowance to spend a little, save a little and give some away. Learn to be charitable. Help someone out. Give to someone who’s needy. That’s a great value about money management.
“I like allowances, but they have to do them properly. Make a contribution to the family, not just because they’re entitled to it.”
Teaching children to put their money away into a piggy bank is one of the first steps they can take, he said.
Starting early is key, but he said it’s important for parents to teach financial management to their children at every stage of their life.
When their children are in high school, they can set them up with a checking account and give them a debit card with a low limit, he said.
“Sending a young adult into the market place without a sound financial management education is cruel and unusual,” he said. “It really is because they can get in trouble so deep and so fast. It’s unbelievable. Without those tools, they get into trouble so quickly: credit history problems or defaulting on loans.”
Students can take financial management classes in high school and college, but none of them teaches a class on personal finance, he said.
“I do have a passion to teach young people about this,” he said. “It’s horrible how much young people can get into trouble. It doesn’t get easier when you get older.”
As a parent, he said his goal was to teach his children to be self sufficient.
“My goal is for you to live independently,” he said. “We’ve got to teach kids early and be consistent.”
There are many ways parents can instill financial responsibility in their children and ways to encourage them to save money right alongside their parents in various ways:
• Start giving children an allowance in return for doing their chores. A great way to teach children about money management is to give them an allowance in return for doing their weekly chores, which teaches them they must earn their money and how to budget. Resist the temptation to give children extra money or advances on their allowance, as doing so can compromise the lesson that kids need to budget.
• Encourage children to establish specific financial goals. If they have their eye on a new gadget or gaming console, encourage them to create a savings log that tracks how much they’re saving each week and how close they are getting to reaching their goal. As their balances increase and they get closer to their goal, they may grow just as excited as adults do when they see their investments perform well.
• Match their contributions. Another way to encourage children to save money is to match the deposits they make into their accounts. Whether it’s teenagers saving for their first car or younger children saving for a new bike, they may be more likely to save if they know their contributions are being matched. Parents can explain that matching is not just for kids, as many parents benefit from employers who match their retirement contributions.
• Let them make mistakes. Many adults feel the best financial lessons they learned were a by-product of a mistake they made that forced them to reexamine their approach to money. Letting children make financial mistakes now may help them avoid bigger and more costly mistakes down the road.
• Teach impulse control. Many adults exercise impulse control by waiting 24 hours to make purchases. In this scenario, adults who see something they like online or in-store that they don’t intend to buy will wait a day after seeing the item before deciding whether or not to purchase it. Children can benefit just as much from following this guideline. Discuss with them pros and cons of buying the item.
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