I recently came across a study done in 2016 by the Financial Industry Regulation Authority (FINRA) on financial capability in the United States. The study states that less than a third of the respondents were offered any type of financial education course by a school, college, or employer. They also discussed how financial literacy is strongly correlated with being able to manage finances without difficulty; meaning that one is more likely to plan for retirement, have money in an emergency fund, and use credit cards less.
This made me think about when I signed my first lease on an apartment before my senior year of college. I did not tell my parents and went into it blindly thinking I will just figure out how I will pay the bills each month. Even worse, I decided to take out additional student loans to pay for it. Currently, I am still paying off my loans, and maybe if I did not go that route I could have had my loans paid off by now.
I do not want my future children to make financial decisions without that understanding. So, how do we change this for our future generations if only a little less than a third of people are being offered financial educational courses? I have compiled some tips on how to start teaching children positive money habits as they develop through the years:
- Give your child a piggy bank. When Grandma gives them a dollar or if they find a random quarter or two, they have a place to start accumulating their savings.
- This can lead
intobudgeting. Take your child to the store with their money from the piggy bank. Let them make a decision on what to do with the money. They can buy one item and spend all their money OR a smaller item and save the rest of the money for later.
- Allow your child to make mistakes with their money. Let them learn the lesson of what happens when they spend all of their money and have none left for later purchases.
- Teach them how to earn money by doing chores and giving them an allowance. Children will value the money they earn more than what they are just given. This will also help teach them how to budget what they earn.
- As they get older, (high school and college age) teach them about budgeting and debt. Explain what happens when you do not pay a debt and how the repercussions can last many years, even from one mistake.
- After college, teach them about building credit, saving for retirement, and investing. At RIG, we offer our clients’ children who are recent grads or about to graduate an Investments 101 course. There are resources out there to help them learn to be financially capable.
Learning to be financially capable is as important as learning your ABCs. It’s the foundation to helping achieve life goals, reducing stress, and making sound financial decisions. If we can teach these lessons early on to future generations, we are setting them up to succeed.
If you or anyone you know needs assistance in becoming more financially literate, contact us for further assistance.
The opinions voiced in this material are for general information only and are not intended to be a substitute for specific individualized tax or legal advice. I suggest that you discuss your specific situation with a qualified tax or legal advisor.