By Peter Mastrantuono
Personal finance may be the most ignored subject in the education of American children. Only 7% of surveyed Millennials showed a high level of financial knowledge, which shouldn’t come as much of a surprise since less than 25% had any form of financial education, according to research by George Washington University.
To ensure that children grow up to be financially smart and responsible adults, their parents must take a leading role in their education.
Financial education can begin early, starting as young as age three or four. Of course, a child’s financial education should always be appropriate to his or her intellectual stage. Here are some ways a child can learn about good money habits.
Don’t overlook the value of Aesop’s fables and the lessons they can teach about personal finance, e.g., The Ant and the Grasshopper, and The Miser and His Gold or movies, such as The Pursuit of Happyness and Confessions of a Shopaholic.
The best way of learning, of course, is by doing, which means teaching children about money by giving them the opportunity to make their own financial decisions via an allowance.
Giving children an allowance (and how much) is a decision that will vary from family to family, based upon the parents’ personal values, family income and common sense.
By receiving an allowance children can learn budgeting, charitable giving and saving for the future. For instance, parents can require that an allowance be split among different buckets, such as discretionary spending, saving for next year’s vacation or contributing to a local charity.
Since children have similar financial appetites as adults, don’t be surprised if they eventually ask for a raise. This is a perfect time to teach about inflation, how to negotiate and the connection between higher pay and providing greater value.
An interactive, real-world way to educate children on financial decision-making is to include them in on the decision-making. This doesn’t necessarily mean giving them a say in every decision, but inclusion will give them insight into the thinking that went into a decision. For example, the savings from buying the generic brand of cereal helps the family afford Saturday visits to the ice cream shop.
Another way to teach children to make thoughtful spending decisions is to provide them with a set dollar amount at the start of a family vacation to cover souvenirs, late night snacks and video games. This will teach them how to budget their money and prioritize their spending. (This also has the benefit of saving parents from constant requests for money!)
For older children, especially college students, consider giving them a debit card that comes with a fixed monthly amount, e.g., $200. This will help build the skill of living within their means.
Finally, a financial advisor can be an important resource in developing a financially skilled adult, especially when it comes to basic investment concepts. Until then, parents may want to look into the many educational tools that are available to them, including Mint’s directory of financial education resources.
Peter Mastrantuono is a contributing writer to www.myperfectfinancialadvisor.com, the premier matchmaker between investors and advisors. Peter worked for over 30 years in the wealth management industry, focusing on retirement planning, investing, asset allocation and financial planning.
