By: Allison Pearson
Talking about money is difficult for most of us. Sometimes, talking about money to a family member is even more difficult.
Growing up, I was fortunate to have parents who prioritized my financial education from an early age. When I was a teenager, my grandmother gave me a small sum of money to do with as I pleased. After some gentle guidance from my dad, I decided to invest the money. My dad set up a meeting between me and his stock broker so I could learn and decide how I wanted to invest. At the end of the day, I ended up losing all the money. Ultimately, this early lesson was more valuable than the money itself. I learned firsthand about the importance of making thoughtful investment decisions, and about how quickly and easily money can be lost.
When I started my first post-collegiate job, my company offered employees a government bond program, with bonds that matured after 20 years. As a young investor with an instant gratification mindset, I could have easily brushed the whole idea aside as pointless. My parents, however, urged me to participate. I took their advice and just now cashed those bonds out to help pay my son's college tuition.
As my son begins college, I have worked to follow in my parents' footsteps by educating my son on finances. This effort hasn't come without challenges. I suspect I'm not alone. In fact, I imagine that a lot of parents feel uncertain about how to talk to their kids about money. So, to support you in this process, I'd like to share five tips for educating kids about money.
1. START SMALL
When I was in elementary school, students were all encouraged to contribute small amounts – nickels and dimes – to a savings account. As students, we then were encouraged to check our saving progress. Though this activity wasn't a requirement, it was extremely valuable and financially accessible to nearly everyone.
I brought this same approach to bear in educating my son. I started with similar small, low-pressure lessons. For example, I encouraged him to count the coins in our spare change jar so he could see how every penny adds up over time.
Establish a foundation of financial literacy from a young age. Concepts of earning, saving, spending, investing and donating will eventually shape how your child views the world.
“Establish a foundation of financial literacy from a young age. Concepts of earning, saving, spending, investing and donating will eventually shape how your child views the world. ”
2. GET YOUR KIDS INVOLVED
My dad made it a point for me to speak directly with a stock broker instead of doing it for me. When I opened my son's first savings account, he came to the bank with me and talked to the banker himself. From then on, whenever he had money to add to the account, we would go to the bank together to deposit the money. This helped familiarize him with the bank and started to give him a sense of where his money went.
Your child's first paid job is another ideal opportunity to teach the importance of saving. When my son was six, we would go out to the golf course behind our house and collect golf balls that he would clean and sell. When he was nine, my son started to earn money by mowing lawns in the neighborhood. At that point, we established a rule that at least half of the money had to go into his savings account for college. When a kid gets their first paid job, the novelty of having one's own money can make it tempting to spend it all at once. If you as a parent can instill a saving mentality early on, you're more likely to teach your child to be a saver, or at least a financially responsible adult.
“Your child's first paid job is another ideal opportunity to teach the importance of saving.”
3. TEACH YOUR CHILDREN THE MONETARY VALUE OF EDUCATION
Though you probably wouldn't explain the inner-workings of a college savings fund to an 8-year-old, it's a good idea to help young children understand that a college education is not only valuable, but also costs money. If relatives contribute to your child's college savings account, be sure to explain the importance of those gifts and how they positively impact the future expense of college.
Though I am proud of teaching my son about college savings, reflecting back, I should also have shared the quarterly statements of his college 529 plan. By not engaging him in reviewing those statements, I missed an opportunity to help him understand how money performs when it's invested. You may want to consider sharing this type of information with your kids.
4. HONESTY IS THE BEST POLICY
Be honest about your family's financial situation. Though these conversations can be difficult, they also help children understand what to expect in terms of household spending, and how those spending choices impact them.
For example, when you openly discussing a job loss or pay cut with your child and explain its impact on the family's near-term spending, you can teach your children about coping with unexpected income changes. Conversely, if your financial situation unexpectedly improves, you can discuss how to responsibly manage positive change to ensure it has a long-term impact.
“Be honest about your family's financial situation. Though these conversations can be difficult, they also help children understand what to expect in terms of household spending, and how those spending choices impact them.”
5. TEACH YOUR CHILDREN ABOUT DEBT
Learning about debt is equally as important as learning about saving. When I accompanied my son to open his first checking account, the bank also recommended he open a credit card to start establishing a credit history. Though I was nervous about this idea at first, I decided to allow my son to give it a try. Thanks to my son's frugal nature, his $500-limit card has yet to be used even mid-way through his sophomore year at college.
Be sure to also observe and monitor your child's spending and saving habits. Understanding their habits will help you decide how much guidance or control to offer with regards to finances.
“Be sure to observe and monitor your child's spending and saving habits. Understanding their habits will help you decide how much guidance or control to offer with regards to finances.”
Before your kids go to college, talk to them about the possibility of student loan debt, too. Student loans have quadrupled since 2004, becoming a more significant burden for millions of people.1 In my case, even though I planned to save enough to cover my son's tuition, he chose a more expensive school than I'd anticipated. For our family, that means he'll be on the hook to cover some of the cost himself.
Encourage your children to explore opportunities to lower the expense of college, whether through scholarships, financial aid, or reduced housing, meal plan or text book costs. You may want to draw up a detailed college budget with your child and use that opportunity to reinforce the importance of lifelong budgeting skills.
My son embarking upon college has been a major turning point in my efforts to educate him about finances. These financial education conversations can be intimidating for parents and kids alike. Nevertheless, I feel good about helping my son lay a foundation for a healthy financial future.
Every family is different. The tips I've offered may not fit your specific situation. Furthermore, conversations about finances are highly personal. At minimum, keep the conversations going. Regular open dialogue can go a long way toward building a healthy mindset around finances and beyond.
This article originally appeared on https://www.jacksoncharitablefoundation.org/for-grown-ups/articles/5-tips-for-educating-kids-about-money.xhtml
Allison Pearson currently serves as Vice President of the National Sales Desk for Jackson National Life Distributors LLC (JNLD). She is responsible for the Career Development Program, coordinating recruiting efforts and training and supporting the Sales Desk management team in strategic initiatives. Allison joined Jackson in 2002 as Director of Recruiting with Human Resources.