Our kids are learning a lot in school but personal finance is not one of them. From interacting with classmates and learning how to read and write in starter years to a more formal curriculum as they progress up the educational ladder. As they get to high school, they get more serious in studies in preparation for college. But as NYpost.com reported, high school students are graduating with little to no personal finance lessons.
Having very little idea on managing finances is considered by finance professionals as a severe disability in today’s generation. This is further highlighted by a CPA and adviser John Vento of Staten Island saying that the financial illiteracy could be one of the biggest threats the country is facing today.
A Councilforeconed.org study revealed that 4 more states are now requiring high school students to graduate with a personal finance course. This brings the total to 17 states but that is just 34% of the 50 total states. The other 33 states have yet to follow suite. But the clincher is that out the 17 states requiring financial courses, only 6 states actually require tests to measure the knowledge of students in personal finance.
Without enough knowledge on financial management, college-bound students could be constantly facing money worries unless they do something about it. There are money lessons they need to learn because if left unchecked, this will be a vicious cycle. As they grow up and start families of their own, they will not have enough financial wisdom to impart to their kids. And they themselves as adults would take on loan and credit instruments they know so little about and experience repayment problems down the line.
Money is never a fun topic and quite hard to share with kids who have a million things they want to do. Getting them to sit down and attentively focus on a boring topic is a task of epic proportions. But producing finance savvy kids will help them immensely in the future.
Personal finance for kids
There are three main concepts kids need to learn about finances. At their age, they can practice it as they go to school with their allowance.
- Budget. Kids need allowance for school. They need it to pay for food, supplies and probably other things they would need to buy in the mall after school. Budgeting can start from their allowance. Whatever amount you give them must last them the week or the month. They will be forced to concentrate in keeping tabs on their finances.
- Save. The initial reaction of kids would be to save. This is a good thing because they will be forced to see the value of money. They will need to save every penny and dollar to stretch their budget to cover the next allowance.
- Spend. They will need to spend but will now be more aware of the costs and the implications it has on their allowance. Before making any purchases, they will now think twice if it is within budget and if it is really necessary.
Parental example
As much as there are pointers we can teach our kids about finances, personal finance starts at home and their very first role models are the parents. They will most likely follow what you do rather than what you say because as the saying goes. “action speaks louder than words.” Theweek.com shares a few things adults can do to show that they too are conscious about their personal finance and they take is seriously. Booking flights Taking trips with the family for vacation or flying out to see family for the holidays is a great bonding moment with your family especially the kids. But flights are not cheap, they take quite a toll on your budget especially if you are bringing the whole family with you. Luckily, booking early does have its perks. The farther out you book from your flight date, the less expensive it is. About 2 months time is a good enough head start to book cheap flights but for major holidays, it might need about six months out. Rule of thumb is the earlier you book, the less expensive the ticket price should be. Though sadly, it does not hold true for all the airlines especially for international flights. What you can do as a family is to announce the trip early and have a magic jar where you you will all save up for the trip. Determine the actual cost of the flight and put in money as a family. Majority of it would be from the parent’s salary and some of the amount would come from the allowance of the kids. The important thing is to involve the whole family and make it fun for them while seeing the value of saving up for a goal. Paying off debt Paying off debt is a great family opportunity to help make the kids see how grown-ups deal with personal finance. Show the kids that you are diligently making payments over to monthly responsibilities. It is a good time to show them as well how adults need to balance the payments and saving up for retirement or for emergencies. One thing you can do as a family is when a big purchase for the kids is made, pay it as a family. When after buying that big tv for the family room, show them how much it is costing you monthly and ask the kids to help you pay for it. A few dollars a month from their allowance may not make a lot of difference in the total bill but the lesson they will learn will be more beneficial for them in the future. Importance of a budget Going out with the family should be a regular activity. They can learn about personal finance in a lot of ways including learning money lessons from movies. But as you do the grocery or buy something from the store, show them the importance of maintaining and sticking to a budget. One way to practice this as an adult and impart the practice to kids is by carrying a list of things you need to buy whenever you go out. DOing the groceries with the kids can be fun with a list. Ask them to be your auditor and check the list of things to buy. Whenever you put something in the cart, ask them to cross it out from your list. Do this until you finish the list. As it is a good practice to over budget for groceries, put the savings in a jar meant for the trip or for payment of other bills or better yet, as a savings in your kids account. Personal finance is quite a learning challenge for kids and an executional challenge for adults. But as a family, there are ways to help both adult and child. More than relying on educational institutions to teach the kids about money management, it could start at home. The best approach would always be doing it as a family and making it fun for the kids. Encourage them to take an active part in the family finances by asking their opinion if the family should buy a second car or if the tv is still doable or if a new pet is something the kids will help with. Whatever it is, develop their interest and skill in managing personal finance as they will make great use of this when they become adults.