What Your Children Should Know About Personal Finance

It’s important to teach your children about personal finance. It won’t be long until they’ll need to know, and understand how to manage their own.

News reports are frequently telling us that personal debt is at an all-time high, and that most younger Americans have little or nothing saved for retirement.

These trends are disheartening, but they are really not shocking. After all, many families never talk to their children about personal finance, and fewer and fewer schools are including financial literacy in their curriculum.

So it comes as very little surprise that we have a generation of spenders, not savers, who may not understand the long-term implications of their actions.

There are many reasons parents choose not to discuss personal finance in their families. Perhaps they feel they aren’t good financial role models. Maybe they don’t want to worry their kids. It’s possible they were raised that money is a private matter, not to be discussed openly.

In any case, talking to children and teens about personal finance matters – and it’s one of the best ways to prepare your kids financially for the future.

What children should know about personal finance

The most important concept to convey to younger children is that of needs vs. wants. We may want a new stuffed animal or name-brand clothes, but we need a safe place to live and something to eat and shoes on our feet.

This basic fact about finance needs to be conveyed over and over.

Another key message is that all things have a cost. This means more than the dollar value. It’s also a chance to talk about decision-making.

  • Yes, we can order a pizza tonight as a treat; however, that means we won’t buy ice cream at the store next time we get groceries.
  • Yes, we can go on vacation, but that means Mom will have to work extra hours each week and miss dinner some nights.
  • Yes, we can go on vacation, but that means Mom will have to work extra hours each week and miss dinner some nights.

These trade-offs are an important part of becoming a financially literate adult.

A final important concept for children is spending, saving, earning and giving. Many children focus on what they want to get – spending.

It’s important to teach them about saving for future needs and wants, too. If you give an allowance, or they get birthday money, can they hold on to some of it to put toward a larger goal?

How can they bring in money? You’d be surprised how many tiny entrepreneurs can raise $10 to $20 through hard work.

And what about giving? Is their money benefitting only them, or can they help someone else?

What teens should know about personal finance

All of the concepts taught to young children should be conveyed, over and over again, to teens as well.

Teens also need to start thinking about things such as longer-term planning. If they want to buy a car or go to college, how can they work toward that goal starting early in their teen years?

This length of time is harder for smaller children to understand, but it is important for teenagers.

It’s also important for teens to learn about credit and debt. Yes, you may be able to put this purchase on a credit card now, but it does need to be paid for eventually.

To understand that, you need to know how interest works. Similarly, understanding things like loans and mortgages will help teens prepare for life after high school.

Finally, teenagers should know about money mistakes. That will mean being honest about your own mess-ups. If you spend $50 on a shirt that shrinks in the wash and can’t be worn, point that out. If you put a home repair on a credit card because you don’t have an emergency fund, talk about why – and what you’re going to do in the future.

Your teen will make plenty of money mistakes on their own. Knowing that they are not the end of the world, and that there are ways to bounce back from them, will help get them on more solid financial footing.

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Best ways to talk to kids and teens about personal finance

The best personal finance talks happen naturally and regularly.

As with discussing other difficult subjects, sitting kids down once to have “the talk” generally gives the impression that this is a taboo topic. It also may promote the idea that there’s nothing more to be said – that whatever information conveyed during the single meeting is all the child needs to know.

Instead, consider ways you can work conversations about money and financial goals into everyday life. There are many; here are just a few ideas to get started:

  • Shopping: Make sure that your children and teens accompany you to the grocery store and out shopping for other household needs and wants. Let them see the value of individual items, and point out the total. It’s easy at the grocery store to think, “Oh, that’s only $5,” but several such items can add up very quickly.
  • Books and movies: Many books and movies – even those for young children – include takeaways about finance and consumerism. Would Mr. Popper REALLY be able to afford to keep penguins in his apartment? Is a family where one parent works all the time to provide a huge house, but can’t be present at kids’ sporting events, really happier? These are the things to talk about as you watch or read.
  • Holidays: Birthdays, Christmas and other holidays can lead to a serious case of “I want”s! Helping your child or teen think about the cost of their most-wanted items is a great start. It also helps to talk about those who may not have as much. Many organizations take donations of basic items and small gifts, not just at Christmastime but year-round. Helping your child think about the needs of others, and showing that giving is a family financial priority, can make a big difference.

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