Financial illiteracy in children is prevalent. Surveys show that most kids are growing up without good financial education, which may lead to money management complications later in life. Based on the current trend, your child will most likely grow up a financially illiterate teen or adult unless you take the necessary steps now to prevent it.
Imagine your child as a young adult without the necessary financial aptitude to get ahead in life. He or she may be highly intelligent in other areas, has the means to make a lot of money, but live paycheck to paycheck with insurmountable debt and no savings.
The good news is that you can prevent this tragedy from happening with early financial education in the home. YOU can teach your child about money management for success.
But how do you bypass the embarrassment about your own financial difficulties and educate your child about good financial habits?
The following recommendations will provide some insight about the correct approach to the problem:
Adopt the Right Perspective
If you’re not doing well financially, you’re not entirely at fault. Although I believe that each of us has the responsibility to prevent or fix bad things in our lives, there are outside influences (things beyond our control) that contribute to personal tragedies.
For example, for more than a century, most American families have practiced financial secrecy in the home. They concealed vital information about money from children, leaving millions of kids on their own, grappling to make sense of the financial world around them with little success.
The evidence of your own financial struggles today as well as those of most people in this country speaks volumes about the financial errors of parents and grandparents of past generations. Among other things, they neglected to educate their children about money.
So, instead of blaming yourself for all your financial woes, it’s time to adopt a new perspective about the situation. First, forgive those who neglected to train you properly in the art of good money management. Second, determine to take the responsibility to teach yourself the necessary financial skills to succeed. Third, vow to help your child become financially smart, starting with home training.
Today, you have a decision to make: You can continue the financial secrecy and deny your child the benefit of a good financial education. Or you can bring an end to the old problem … forever.
If you choose the latter, it’s going to take some effort. Initially, you’ll have to REPLACE some of the fruitless, financial habits that you’ve learned over the years with profitable ones.
But despite the challenge, you’ll bravely embrace the change because you love your CHILD and want the best for him or her. You’ll also want to improve your OWN financial situation in the process.
Admit Your Financial Mistakes
As part of a culture that shops and buys things around the clock, there’s litter you can SAY to convince your child about saving money.
The financial pattern has been set from birth, and before eight years old, your child will come to realize the following truths, though most of them may remain unspoken:
- Mommy and daddy argue about money all the time.
- Mommy and daddy don’t save money. If they do, they never tell me about it, or I never get to see it.
- “We can’t afford this or that,” they say, but they keep buying things all the time.
- My friends spend every dime they have, and they never talk about savings.
- No one needs cash if credit cards still exist.
- Money is made for spending. When you spend all you have, work for some more and repeat the pattern.
- Saving money is not important. Why put it away when you need it today for something new and exciting?
- When you run out of cash, MasterCard, Visa, Discover, and American Express are always available.
This type of thinking might be useful in some circles, but it’s certainly not the type that helps you grow rich, as Napoleon Hill wrote about in his classic book, Think and Grow Rich.
It makes no difference how many college degrees a person has, he or she is destined for financial failure with this type of mindset.
Your job as a parent is to change this perspective in your child. But you can’t do it by TELLING, it must be done by SHOWING.
This means that if you truly desire to help your child succeed financially, you should approach the topic with COMPLETE HONESTY. It can’t be done any other way.
Kids are highly perceptive when it comes to detecting the truth in the midst of lies and deception.
So, you need to approach the situation this way … in your own words:
- Let the child know that you, too, grew up with parents that didn’t value financial education as an important asset. Otherwise, they were highly secretive about money for various reasons. So, you grew up not knowing how to handle money properly.
- Equally bad, you and your spouse (if you have one) have been part of a culture that continually overspend…and you, too, have been caught up with overspending.
- Admit to the child that you and your spouse have created a lot of debt and have little or no savings (if these conditions are true).
- If you’re serious, confess that you’re about to change this situation forever.
- Let the child know that you’re going to make financial education a priority in the home … starting with YOU.
- Then start demonstrating real evidence of your intention immediately after the conversation:
- Create a budget or financial plan if you don’t have one. This 12-Month Cash flow Plan will do just fine.
- This is critical: Start saving 10 percent of your income for financial GROWTH, 10 percent for an emergency FUND, and use the remaining 80 percent for financial obligations and necessities.
- If you’re unable save 20 percent of your income now, start with a smaller amount and gradually increase the percentage as things get better.
- SHOW your child what you’re doing and have him or her do the same with allowances, money from chores, cash gifts, etc.
- Cut back on the ceaseless spending.
- Start getting rid of debt and SHOW the child how you’re doing it.
- Manage the URGE to buy things on impulse. For example, let the child know that you would like to buy this or that, but you don’t have the money now to do it. So, you’ll WAIT for the right moment.
- Read books and articles about money.
- Enroll in a basic financial management course and transfer what you learn to the child.
Remember, if you don’t take this situation seriously, your child won’t either. Then, he or she will mostly likely become a static, which means being grouped with the financially illiterate youths in this country.
Commit to A New Beginning
It is said that if you commit to doing something for 21 days, it will become a habit. While this is good to know, for something as important as your financial success, you should not put a time limit on it.
What I’m recommending should become a way of life for the family, starting with you (the parent).
From this time forward, your child should be able to look at you and see someone who admitted to financial mistakes, mustered the courage to change, and made a commitment to improve his or her situation.
In short, this is nothing less than the attitude of a hero…a model…one your child will feel proud to emulate.
So, you must be strong, courageous, and consistent with your new role as the financial leader in the home. This means that you must seek opportunities to demonstrate to your child what is required to be financially successful.
If you remain committed and encourage your child to do the same, the financial rewards will follow.
Eventually, the education, discipline, and consistency will propel both you and your child toward financial progress. This may include starting a savings program, reducing debt (for you), controlling impulse buying, pledging to a budget routine, etc.
Remain Open with Your Child
As indicated earlier, part of this change requires openness. This means bringing an end to financial secrecy, silence, and coverup.
Don’t be afraid to show your child what you’re doing with your finances. Let him or her see your budget, what bills you’re paying, how much money you’re saving, how much you’re paying down on debt, etc. This type of demonstration will cultivate trust, closeness, and self-confidence.
In the past, much of these important financial functions were kept away from children. Parents assumed that kids would automatically grasp good financial management concepts with age.
What these parents failed to understand is getting older doesn’t necessarily make people financially smarter. We now know that financially illiterate children become financially illiterate teenagers and adults.
So, as you work on improving your financial situation, keep your child in the loop. That way, he or she can see what you’re doing and practice the same.
Share Information about Progress
Finally, make time to share progress reports. Show your child how much progress you’ve made since you started the change and pay attention to how he or she is doing on proposed monetary activities.
If you find your child isn’t saving as much as you expected, avoid criticism. Instead, emphasize the importance of saving money; remind the child about the value of waiting to buy something; discourage the idea of hasty purchases, etc.
The idea is to improve on what’s not working well and encourage efforts for doing better. With time, continued education, and consistency, things will get impressively better for both of you.
To learn more about financial management, consider reading my new book: Pennies to Power: How to Use Your 20’s to Gain Financial Independence for Life.
Thanks for reading.
What Are Your Thoughts?
Do you think children need financial education? Should schools or families teach children about money management? How early should parents start teaching children about personal finance?