What Your Kids Don’t Know Could Hurt Them
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by: CathyMahady
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Word Count: 626
In today’s chaotic and volatile economic conditions, it is vital that our children become financially literate at an early age. And while the schools are getting better at incorporating this education into their curriculum, it still falls primarily to the parents to teach good financial skills.
Early, practical application of the skills needed for economic independence and security is critical. We put my son on a budget early in his life. He was given an allowance, for which there would be specific allocation of the funds. Despite the fact that his allowance was rather small, there was a consistent and predictable application of this money.
He had four categories to his money management system.
1 – Charitable contributions
2 – Investment into a mutual fund
3 – Long term savings for larger, more expensive items
4 – Immediate spending money, which he could do with what ever he pleased
This clearly taught him the important lessons of giving, saving, and investing.
Another financial strategy is the Matching Game, very similar to your company 401K retirement plans. Just as your employer matches your personal contributions, you can match your child’s savings contributions. This will encourage the process of saving and reward them for being patient enough to see the money grow.
It was only when my young son began making his own purchases with his hard saved money that he started to pay attention to the price of things. I clearly remember a visit to the gift shop of the tourist location “Underwater World at the Mall of America.” His browsing of the over priced, gimmicky toys made an indelible impression upon his little brain. He exclaimed with frustration, “How can this pencil cost so much, it’s just a pencil!”
As the years passed and he became a teenager in a wealthy suburb of Minneapolis, the peer pressures of fitting in and keeping up presented itself. When it was time to make his yearly purchase of school clothes, we’d set out for the mall.
Our first trip was always through a reasonably priced department store that allowed us to set a purchase ceiling. He then knew what the maximum amount Mom was willing to pay for any individual item. He could simply accept that or reconcile in his mind that if he insisted on the more expensive American Eagle or Abercrombie & Fitch clothing, that he would be paying the difference himself.
As more years have passed and he has now become a college student, the financial lessons don’t stop. Recently, he wanted to open a credit card account with the single goal of getting a free pizza, with no consideration of the ramifications of the card requirements itself.
His response was, “I was gonna close the account after I got my free pizza.” Ah, another opportunity to educate him on the importance of his credit rating and how randomly opening and closing accounts can be detrimental to the credit score he is trying to cultivate as a young adult.
And he has already experienced the frustration of trying to open his first credit card with no concrete credit history. He was able to see how easily the financial corporation would be willing to provide him with low interest credit – as long as he could provide to them a history of mortgage payments and employment – or better yet (for them) the co-signing of his credit by his parents with an exceptional credit rating.
So we continue to coach and guide him through the maze of financial management with the hopes that one day he’ll be a fully functioning independent adult who makes wise and thoughtful decisions about his finances because of the instruction he was given as he grew from boyhood to manhood.
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