So why do children and teens struggle when it comes to learning about money? Because, in most cases, personal finance topics aren't taught in school and parents aren't teaching them at home.
"The vast majority of students in high school -- 85 percent of them -- get nothing in the way of financial education," says Michael Baker, a resource teacher within the Academy of Finance at Col. Zadok Magruder High School in Rockville, Md. Fortunately, some states are now requiring it, but, as Baker says, "It's a slow moving train."
Some experts argue that even when it is taught in schools, the curriculum isn't effective. "What should be taught is a skill set," says Loral Langemeier, author of "The Millionaire Maker's Guide to Wealth Cycle Investing," which goes on sale next month. "Schools ought to be teaching sales, marketing, finance and leadership skills."
Since schools aren't doing the job, experts say parents must. Here are some suggestions to get your children started on the road to fiscal knowledge.
Begin in preschool
Neale Godfrey, founder of Children's Financial Network Inc., suggests teaching children money skills when they are preschoolers.
Langemeier agrees that children are never too young to start. As soon as children begin to use the words, "I want," you can begin teaching about money. Unfortunately, most parents don't even try to teach their children about money until their children are in high school or college and obtain their first credit cards.
"By that time, it's too late and all parents can do is pray," Langemeier says.
Talk about money
Most of us were taught that money is a topic that shouldn't be discussed in polite company. By perpetuating that phobia, we're preventing our children from learning about financial matters. If we don't talk about it, children develop a skewed view of how money is managed.
"Children only see adults spend money -- or charge purchases on credit cards," says Godfrey.
They don't experience adults paying the bills, saving money, making investments or giving to charity. Have your children sit down with you when you are working on these financial chores so they get a balanced view of what managing money entails.
Give children an allowance
One of the best methods of teaching children about money is giving them a weekly allowance. An allowance not only gives children an opportunity to practice saving and spending money, it also teaches responsibility.
Langemeier says that it's fine if children end up playing with the money or leave it lying around. When her young son misplaced his allowance, she took it. "That taught him real fast that he needed to put his money in a safe place, and now he's very responsible with his money," Langemeier says.
Parents frequently struggle with the dilemma of whether they should just give children allowances, or make them earn it. Godfrey suggests giving an allowance, but not tying the allowance to performing specific chores.
Instead, think about household chores or work as falling into one of two categories.
Godfrey calls the first category "citizen of the household" work. These chores are required to make the household run smoothly. Every family member must help with the citizen of the household work. There is no option to forgo allowance to avoid doing the chores.
The second category of work is called "chores for pay." These chores, such as cleaning out the rain gutters or detailing the minivan, go beyond the normal day-to-day running of the household. "Chores for pay" allow Junior to earn some extra dough if he's saving up for a big purchase.
Support children's business ventures
When children are involved in business decisions, they take greater ownership of the risks and rewards. That's evident in every lemonade stand that has ever been run by a 6-year-old. When they have a say in what is going to be sold, how it's going to be sold and what the cost will be, they become very excited about their business opportunities.
Parents need to make sure they take it one step farther and discuss profit and loss. If it costs $8 for the lemons, sugar, cups and ice, and the lemonade stand only brings in $6 worth of sales, the business wasn't profitable. Talk to your children about what they would do differently the next time to make sure their business turns a profit.
Include children in your business ventures
Most children and teens don't know what their parents do to earn money. Sure dad may be an engineer and mom may work in IT, but what does that really mean? What do they do all day? Once children learn what adults do in different jobs, they become more invested. Take your children to your office and let them see where you work, who you work with and what you do all day.
Let them participate every once in a while in your business ventures. If you sell antiques as a hobby to earn extra income, let them play a role. There's always some way that children can help, regardless of their age. Even preschoolers can help with easy office work such as shredding documents or organizing business receipts.
"Their involvement needs to be age appropriate," Langemeier says. The activities should also be appropriate for the children's comprehension level. But when they get to know how you earn the money, they begin to have a greater understanding of the bigger financial picture.
Hands-on activities
Most people learn best when they experience something firsthand. Children and teens are no different. To learn good money-management skills, offer real world lessons. For example, if the family is considering buying a new car, let your daughter look up the trade-in value. Sit down as a family and discuss the options you'd like to have. Suggest that your son go to three different car dealerships to get quotes on two different types of cars with the options the family has agreed are worthwhile.
One exercise Baker has his students do is count the number of spare "doughnut" tires on cars they see over the course of one weekend. He explains that when there's a "doughnut" tire on someone's car it can only mean two things: Either the driver just had a flat tire and is on his way to have it repaired, or the flat occurred some time ago and the driver doesn't have $50 to get it fixed. Baker says it's usually the latter.
The point of the activity is that it gives the students the opportunity to see how many people can't afford to handle the unexpected.
If the driver had an emergency fund, something that Baker suggests his students have in addition to savings, then he or she could afford to have the tire repaired. The students love this type of activity because it's something they can relate to and see for themselves. |
