It’s important to teach your kids about personal finance. For the most part, these ideas aren’t going to be taught in schools. And places that do teach them often skip over the important stuff. Most kids don’t need to know how to write a check, even though they still teach this in some places. Kids do need to understand basic ideas of saving, budgeting, investment, and debt. These ideas can be 1) modeled, and 2) taught in the home. It’s important for both of these education methods to be performed hand in hand.
Modeling Good Personal Finance
Kids learn by observing more than they ever learn in the classroom. By watching you make good or poor decisions with money, they are likely to mirror these behaviors in their own lives. For this reason, it’s important not to be careless with your spending. It’s important to approach personal finance in such a way that you can live without being stressed out about money all the time. This is one of the most important points. People who don’t have their finances in order are chronically worried about money. This can manifest itself in anger and frustration, or can motivate a person to simply abandon work on a financial plan. This “it’s too hard” example parents send to their children about personal finance is possibly the most damaging. Financial problems accumulate with time, and can eventually become too much to reverse without going into bankruptcy. That’s not a dead end either, but it’s certainly not a desirable option, adding years to the process of getting on one’s feet, and delaying goals and dreams.
On the other hand, parents who have their finances in order can be relatively calm, often in all of life and certainly about money in particular. It’s also important for parents to talk about money. When money is part of the conversation, children hear principles and see it in action. Money is de-mystified, and kids start to understand that it’s a tool that can be used for good or ill.
Educating Kids About Personal Finance
At this point, it’s natural to educate children specifically about the use of money. Kids need to have some basic skills. They need to understand how a basic budget works. They need to understand how to find quick money loans that aren’t a rip off. They need to understand basic concepts like interest, or even how a mortgage loan basically works. Many kids get all the way through high school and college without really understanding even these basic concepts, and the decisions they make in the meantime can hurt them in their financial futures.
Preparing kids for the real financial world is very important. It requires parents to have their own finances in order so that they can model good financial behaviors. It also requires explicit financial instruction, by which kids can be made to learn the actual processes adults use to keep their finances working. Try this out with your kids, and we wish you the best of luck.