What You Can Learn by Teaching Your Kids About Finances
April 19th, 2012 - Category: Financial Literacy
Research shows that most Americans have poor financial literacy and fail to plan ahead for major life events such as retirement and paying for children’s education. Parents who are actively teaching their children about finances and money management are bound to learn a few lessons themselves—and maybe practice what they preach more religiously.
“To teach is to learn twice,” wrote French essayist Joseph Joubert, and that sentiment rings true for parents teaching financial literacy to their kids, says Stephen Rhodes, CFP, managing principal of Strategic Partners Wealth Management in Creve Coeur, Mo. “When you are responsible for teaching your kids about money, it forces you to understand the material in a different way,” Rhodes says. “The myriad of questions you will get from your kids requires you to spend time thinking about the topics, and in turn, helps you to gain a level of understanding not possible otherwise. I have found that not knowing the answers has been the best thing for me long-term, as it causes me to conduct my own research. The lessons I have personally learned seem to stick longer than those I heard about secondhand.”
For instance, by making a conscious effort to teach your children about wise money management, you will learn:
- 1. Being consistent. “When you begin to teach your kids about money, there is a built in accountability,” Rhodes says. “For example, if you provide your kids with piggy banks and communicate that you will provide them with an allowance so that they can learn the importance of giving, saving and spending, the pressure is on you as a parent to make good on your promise. Should you get busy and forget, your kids will promptly remind you about your commitment. The built-in accountability that comes with teaching your kids about money teaches you to be consistent, and once you’re consistent, there is not a money topic that you can’t master.”
- 2. Developing new habits. Working with children to help them develop financial skills can also help give you the self-control to develop new financial habits of your own. Just as your exercise habits and eating habits determine your body weight and physical health, your financial habits will determine your financial health. “If we were to teach and show our children how to save, not only would they save, probably for a lifetime, but so would we,” says Neil Palache, a certified Women’s Money Coach and founder and CEO of the Wealth Creator Company for Women, Inc., in Westlake Village, Calif.
For instance, with their own children, Palache and his wife have established what they call “the Money Inn,” a place where every member of the family drops coins each day. “The kids each have several full piggy banks that they have taken upon themselves to fill,” Palache says. “And as a result, my wife and I have become better savers too.”
- 3. Setting an example. Many of today’s parents have learned to rely on credit cards and other debt instruments. “If we want something, we buy it,” Palache says. “However, we also often struggle because our kids are constantly asking us for things — toys, candy, movies. Very few people have unlimited resources, especially given the current economic climate.” Beyond talking to your kids about why they cannot have something they are asking for, the best way to teach them is to apply that same restraint to your own spending.
“Are you saying no to eating out with the kids and then doing exactly that during the coming weekend?” Palache says. “Maybe there’s a lesson to be learned. Eat out less. Eat home more. Your kids will appreciate it and so will you.”
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