Pass tough money management lessons onto kids
After the great recession, more credit counselors, financial advisors and industry professionals focused their attention on promoting financial literacy among adults. However, most agreed that in order to prevent another economic meltdown in the future, instilling smart money management habits in children that they would carry on through adulthood was imperative as well. Studies show children best learn money basics, financial discipline and management habits from their parents, rather than in school.
However, a recent study conducted by T. Rowe Price reveals that too few parents are sharing their money management lessons and experiences with their children. Three out of four parents admitted they do not have financial conversations with their children, and some said they purposely avoid discussing money matters with their kids. However, one in five kids say they want to learn more about saving money and an equal number reported wanting to learn how to best earn money. Experts say that having these discussions and framing them in real-life financial scenarios can give children more context when it comes to making money-related decisions.
"Set a financial goal that's important for your family [such as paying for college]," said T. Rowe Price financial analyst Stuart Ritter. "Then, when other expenses come up, such as a vacation or a new car, parents can explain the trade-offs. Perhaps the family is taking a quick weekend beach vacation instead of a weeklong trip to put more money into the college account, for example. Kids can learn a lot from hearing how parents make those financial decisions."
Ritter also explained that many parents balk at having money discussions with children because they don't want to reveal the financial details of their own lives. However, this can be overcome by talking about simple transactions, such as buying groceries, budgeting for bills and contributing to retirement, rather than showing children pay stubs and earnings. In addition, parents can teach children money basics, such as the concepts of credit card spending, interest rates, fees and financial products, without using their own financial profile as a guide.
The credit counselors of Consolidated Credit encourage consumers that instilling these concepts in children early on, and showing them the best way to keep expenses low and fuel their savings will help children avoid credit card debt, overspending and poor financial practices in the future.