Teaching Your Kids About Finances and Credit: A How To Guide
Kids aren’t usually the greatest money experts. Depending on how young they are, they might even prefer coins to paper money and, in their defense, coins are shinier. But if you want your kids to grow up with good financial habits, you’re going to have to teach them.
And good financial habits are important. How else can you make sure your kids won’t end up with bad credit or trapped by payday loans? Obviously, it’s a lot to ask that you be a financial educator in addition to whatever other jobs you have (unless one of those jobs is a financial educator, in which case you probably have this covered). That’s why we spoke to some experts to get you the tips you’ll want to give your kids.
You can’t always get what you want.
For young children, one of the first financial lessons to learn is a lesson they’ll have to learn anyway. When little kids want something, they make it clear, and when they don’t get it, they get upset. If you have or have had young kids, you’ve (hopefully) learned to say no when necessary.
Financial coach Brad Kingsley (@maximize_money) told us how you can show your kids that when it comes to finance, you can’t have everything: “One of the best ways to teach financial values to your kids is to help them understand you can’t buy everything you want. We set our daughter up with an allowance rather than buying things for her (outside of birthdays and Christmas). She would save her money to purchase things she wanted, but occasionally was short yet wanted something right away. Not coming in and paying the difference was a great lesson on delayed gratification. It helped her understand that sometimes you just don’t have enough money—and it’s okay to wait. Quite a few times she realized by the time she had the money, that she didn’t want to spend it all on that item she thought she previously wanted! Great lessons learned!”
Do as I say…. AND as I do!
They say “monkey see, monkey do” and below a certain age, what are kids really, but less hairy monkeys? You should tell them good financial habits, but it’s also important that you set a good example.
At least that’s what Howard Dvorkin (@HowardDvorkin), CPA and chairman of Debt.com (@debtcom), believes. “Children learn by example. You don’t want your children to smoke? Don’t smoke in the house,” Dvorkin advised. “Don’t want them to text and drive? Don’t do it yourself. Want them to be financially responsible? Don’t run up huge credit card bills buying items you don’t really need. Don’t buy a more expensive house or car than you can afford just to look good to the neighbors and friends. The best thing you can do for your children is lead by example.”
In addition to listening and watching, kids can also learn by doing. That’s why it’s important to give them assignments or tasks that will allow them to learn on their own.
“Have them open a bank account,” counseling psychologist Dr. Stacy Haynes (@Dr_StacyHaynes) suggested. “Teach saving and spending habits early. Have them play games like Life and Monopoly that still teach children to purchase items, pay for college and buy real estate. The classic board games are great learning tools for money. Have them pay for things. Many children have no idea what items cost as they never buy things. And use cash, not cards, so children learn what money is and how fast it can go.”
Dr. Haynes even offered a personal example: “An Impact project my 5th grader had to do for school actually had them create a business and sell a product at a trade fair. They had to figure all their costs and profits from the experiment. Great learning tools to have hands on real life application.”
“When our children were about 11, we got them checking accounts with a debit card and savings accounts. Although they did not get an allowance, they always found ways to make money like, marking up pop and candy and selling it at the annual garage sale or squirreling away some birthday gift money. Two of them had opportunities to travel with the People Student Ambassadors, and they had to come up with ways to do their own fundraising. We did everything from selling homemade soaps, to chocolate bars. They raked leaves and even had an ice skating party to raise funds. They understood that money is a privilege and must be earned.”
Elia also told us about a literary lesson she gave them: “As they got a bit older, we used one book that was from the Life Leadership organization that I work for. It was quite instrumental in my own teens’ lives. Financial Fitness for Teens is a book that teaches the offense, defense, and playing field of finances and goes way beyond telling a teen how to mow lawns to make extra cash.
“I purchased the book for each of my teens and gave it to them at Christmas with a $20.00 bill as the bookmark. I told them if they were able to read it during Christmas break and have an intelligent discussion with me about the book, I would gladly give them another $20.00. What a great incentive, and what an interesting way to see just who would benefit the most from the book.
“My entrepreneurial son read it first, and truly blew me away the following summer, by adhering to some of the principals. With each lifeguarding paycheck, he gave me 20 percent of the check and would alternate if he wanted it in his Roth IRA or his Mutual Fund account. He also paid mom and dad up front for his portion of the car insurance for the year. Wow.
“My oldest daughter was second to discuss the book with me as proof that she read it. She has the most expensive taste of the three kids, but I know that she manages her money well as she lives alone off the campus of her law school. I peek at her checking account from time to time (as she never got around to removing my name off of her account when she was a minor) and I see that she is always in the black.
“My middle child was the last to read the book, right under the wire of Christmas break being over. She is the child who is thrilled to wear big sister’s previously worn formal wear to school dances and walks straight back to the clearance rack of any store she shops in. She impressed me the most one day when she was checking out at the register. The sales lady was trying hard to do an upsell or at least get her email information. Katie simply said, ‘Na, I don’t shop much.’ That was truly a parent’s dream.
“Other things we had done as parents included never paying for our children’s cell phones, never giving an allowance (although we occasionally rewarded good grades with some cash when we had some to spare), and always letting our children know where we were financially.
“When all three applied to colleges, they applied to several, so that they could weigh the best deals, even barter with other schools for a better scholarship offer and get the best bang for their buck.
“Finances are nothing to hide from and because schools generally don’t teach anything about finances, we had to teach it at home.”
“First of all, too many parents these days pay for everything their kids get even while they’re in college. I’m astounded by how many kids these days didn’t have a part time job when they were in high school and some while they were in college. So they are entering the real world with no understanding or value for what they’ve earned or what they are spending. My kids were helped with the purchase of their car and they have to pay $100 towards their insurance each month. This means they are required to maintain a part-time job in order to cover their expenses. One of my kids needed a new car and I bought it for them and they make the payments to me. I’m not doing this to hurt them or be greedy, I’m doing it to teach them responsibility.
“The second thing I did and will come back to occasionally is I had my teenagers sit down at the kitchen table with a notepad as I spouted off all the monthly and yearly bills my wife and I pay. Then I had them add up the total with their phone calculators. When they were done I told them this is what it takes to have a house, two cars, food and the basics. NO entertainment or savings was added to the list. I wanted them to have a number in their heads that was realistic. I had watched them be excited about having a $1,000 in savings or that their paychecks were $300 for two weeks work and realized that they don’t have a realistic idea of what kind of money they will have to make to have a comfortable life.
“Bottomline, I’m in the education industry and I feel like kids are not being educated on finances or the value of money enough. Especially where credit is concerned. The fourth month that my daughter was paying her car payment to me she wanted to push back the date that she paid me by four weeks so she could go on a vacation with her friends. I told her that the bank I was paying would not be good with that and in fact, would ding my credit and I would in turn have to take her keys. She rationalized how unfair that was but she’s getting an education about how the world of money and credit work. I have pitched ideas to several school systems about a program that would be ongoing through the high school year that taught about finances and credit but very few administrators have this on their radar. They are too focused on the scores for math and science.”
Through a mix of clever solutions and tough love when necessary, you can make sure your kids are financial masters. Teach them well enough, and maybe they’ll be lending you money one day!
|Leslie Elia (@LifeLeadrship) and her husband have been married for over 30 years. Her careers have included teaching figure skating, using her Health Coaching Certification to teach people to make healthy food choices and most recently working with a Direct Sales Company called Life Leadership. Most of the Life Leadership products are all geared toward getting people out of consumer debt. She began using the principals in her own home and passed them along to her children as well. A former Ironman triathlete, she still enjoys swimming and biking. When not working her Life Leadership business she also enjoys writing and spending time with her husband.|
|Howard S. Dvorkin (@HowardDvorkin) is a two-time author, personal finance expert, community service champion and Chairman of Debt.com (@debtcom). As one of the most highly regarded debt and credit expert in the United States , Howard has played an instrumental role in drafting both State and Federal Legislation. Howard’s latest book “Power Up: Taking Charge of Your Financial Destiny” provides consumers with the detailed tools that they need to live debt free and regain their financial freedom. Howard has appeared as a finance expert on CBS Nightly News, ABC World News Tonight, The Early Show, Fox News, and CNN.|
|Dr. Stacy Haynes (@Dr_StacyHaynes), Ed.D LPC, ACS is a counseling psychologist who specializes in the needs of children, families and parenting concerns. Dr. Haynes has over 15 years experience in the treatment of every day challenging family concerns. She believes in making a difference one person at a time.|
|Brad Kingsley (@maximize_money) is a certified financial coach helping people create a plan for their finances to achieve big goals like becoming debt free, paying for college, and preparing for a comfortable retirement. Visit his site at MaximizeYourMoney.com.|
|Bryan Wetzel (@SkubesEd) is an entrepreneur who has started multiple companies. Two of those companies were acquired as a turnkey solution to a larger companies needs, the third was a production company, which he managed for 14 years. The fourth company is Skubes, founded in 2012, which is currently in operation and growing in the education industry today and was recognized by Dig South as one of the best education startups in the country.|
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