Lead by example when teaching kids about money

Q. How do I train my kids to use money wisely? They just don’t get it.

A. There are many tools parents can use to teach kids principles and skills in money management. Unfortunately, financial illiteracy is reaching epidemic levels among America’s youth. In fact, a Visa survey found that 49 percent of youth believe they are more likely to become millionaires by starring in a reality TV show than by learning how to budget and save wisely.

Only a handful of states require students to complete a course on personal finance before graduating from high school. Not surprisingly, parents play a large role in influencing financial behavior. The American Savings Education Council found that 94 percent of students turn to their parents for financial guidance.

Key principles

It’s important that children learn early how to develop a spending plan. Of course, there is no magic formula, but here are some principles to consider. First, kids should experience what is being taught. A study in the 1960s offered 4-year-olds a choice: get one marshmallow now, or wait 12 minutes and get two. Two-thirds of the children waited, but one-third ate the marshmallow before the time was up. Delayed gratification is a discipline that can be developed.

Second, children should have an opportunity to fail when learning money matters. What are the consequences of financial decisions? Entrepreneurs understand we often learn more from our failures than our successes.

Third, there should be a system of rewards.

A teaching tool

Consider holding a conference with your child and together decide on a spending plan. How much will they spend toward clothes, gifts, saving, giving? This can work for children as young as 8. The budget categories should be minimal to keep it simple, and the “saving” plan can be as simple as a jar of quarters. Using envelopes or jars helps children visualize a budget and makes it less abstract.

Also consider dividing chores into two categories: family chores expected to be done as members of the family (nonpaid), and extra chores providing opportunity to earn income. This teaches personal responsibility and the spending plan principle.

I think I can

Another principle is for parents to have an enthusiastic attitude about goals. For example, on a birthday take your child out and look at goals together. Ask them, “What are your goals?” Compare them to last year’s. The answers are not that important. What’s important is to train them to start thinking about goals and write them down. It might even be fun for them to look back on years later.

A good example

Providing a good example is perhaps the most powerful learning tool. As children get older, consider reviewing the family budget together and making your teen aware of monthly bills and investments. Or even bring them to your next review meeting with your financial advisor. In the end, every parent must discover for themselves what works and what doesn’t.