One of the most valuable gifts we can give our children is to teach them good financial habits. Yet surveys tell us that when it comes to personal financial lessons, parents have a long way to go in teaching their kids basic money skills. Each day parents face the financial needs and wants of their children, which increases dramatically when they become teenagers and young adults.
Talking about financial matters with one’s kids is not always easy, but the sooner parents starts, the better off their kids will be. Budgeting and spending money wisely should begin during childhood when kids earn or receive an allowance. Let your teenagers know that financial decisions involve important choices and understanding “opportunity cost,” which involves the tradeoff between options that require giving up something else.
Here are five ways parents can increase the financial literacy of their teenagers:
a) Talk to your teenagers about your family’s household finances: income and expenses on a regular basis. Make it fun and engaging. Explain to them how income is spent, saved, and invested. Teach them how they can reduce household expenses to save for their college education or family vacation.
b) Have a serious discussion on determining the family’s financial values. Ask the question: what is most important to insure the family’s financial well-being? Financial values should be prioritized. Shelter (having a place to live), food, transportation, and education are some of the basic life expenditures. While these values will vary from family to family, they can serve as a guide for use of financial resources. This includes the development of an individual or family budget, and financial goals to accomplish over the short-term, intermediate term, and long-term.
c) Have “What If” discussions. Talk honestly with your teenagers about financial situations or scenarios that canimpact a family’s financial condition. For example, a change in the economy that would affect the income of the household or unexpected illness or injury that can limit employment. Discuss adjustments in expenses that may have to be made to ensure household sustainability.
d) Talk to your teenagers about the benefits of savings byinvesting a portion of the money they earn or their allowance to increase its value over the years.
e) Be a good money manager model for your teenagers. Your children will learn from they see you do. Therefore, it is important to show your children how to manage money, including credit, so that the family lives without financial stress of worrying about how to make ends meet and sustains long-term financial health.