One of the most important roles parents play in their kids’ lives is preparing them for adulthood; and that means all aspects of adulthood; and that includes personal finance. Unfortunately, it’s not something that all parents do. Not because they’re bad parents but because it just doesn’t occur to them.
Of all the lessons we should have learnt from the global economic meltdown, personal financial management is perhaps the most important. It’s a lesson that we need to pass on to our kids if we want to prevent a recurrence (or the continuation) of the recession.
Kids and money
One of the biggest mistakes parents can make is to give their kids an allowance without making them earn it. The danger is that kids could end up with a sense of entitlement, but they could also end up without any sense of the value of money. The problem is compounded when parents give in to children to demand toys, sweets and clothes on every shopping trip (Daniel Bortz – U.S. News Money).
One of the best things that you can do is set a good example. This means that you need to brush up on your personal financial management skills. Don’t sugar coat things like the need for personal loans, but show your kids how to properly manage these loans so that they don’t spiral out of control.
You should also teach them that money isn’t just for buying nice things and satisfying immediate needs. For example, some money should be set aside for savings and some should even be set aside for charitable donations. This teaches kids the value of generosity and helps instill a social conscience, which is never a bad thing. They also need to learn to budget and prioritise. Your daughter might really, really want the latest Revlon lipstick, but she needs to know that if she buys it, she might not be able to go to the movies with her friends.
Kids, money and education
Schools in the UK and US are considering including personal finance in current school subjects like maths and English (Dan Kadlec – Time Business & Money). Kadlec reports that the UK will incorporate financial literacy into maths classes in 2014; this will include budgeting and compound interest. There is speculation that countries across Europe and Asia will follow suit.
The US is also taking personal financial education very seriously. According to Kadlec, the Treasury Department has developed a website that provides teachers with ready-made finance lessons that slot into current maths and English curricula. The lessons will, of course, be age-appropriate and will include topics such as: compound interest, cost/benefit analysis, inflation, delayed gratification, and goals.
It’s never been more important to teach kids about financial responsibility and financial management. While it’s about time that national education systems started meeting this need, the role of parents can’t be underestimated. If you want your kids to be financially healthy adults, you need to teach them how to be financially savvy from a young age.
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Sandy Cosser writes for a South African-based personal financial services provider, which offers consolidation loans, personal loans and vehicle insurance.