We know that kids can be sponges of information, soaking in all they see and learn from their parents. So the question is, what are we teaching our kids with regard to financial habits? Or rather, what examples are we setting for them by way of our own financial behaviors?
Financial Literacy Month, an annual event taking place in April, centers on improving Americans' understanding of financial principles and practices.
Given how important financial skills are to navigating life, it’s surprising that our schools don’t teach children about money, starting at a young age.
Beth Kobliner, author of the New York Times bestseller Get a Financial Life and a member of the President’s Advisory Council on Financial Capability, says children as young as three-years old can grasp financial concepts like saving and spending. And a report by researchers at the University of Cambridge revealed that kids’ money habits are formed by age 7.
Given this information, there are some basic financial lessons that can be taught to our children that will be of great use to them as they grow up..
Lesson 1: It can wait
“I want it. I want it now!” Every parent of a child between three and five has heard this demand. It could also accurately describe the behavior of some adults who never learned this lesson.
Instant gratification is something that kills the lesson of saving up to buy something that you really want. Kids will learn fairly rapidly that they are not going to get aa trat or a toy every time you walk in to a store. If they see something that they absolutely fall in love with, then try this approach. “Ok, well I can see you really like that toy. It’ll still be here when we’ve saved up for it next week.”
Lesson 2: Make good choices with your money
As your children grow to about six o eight years old, they’ll need to wrap their heads around the age-old “money doesn’t grow on trees” concept. Money is finite, and it's important to make wise choices of how you manage, save, and spend your money.
This also translates into teaching your children that once they spend the money they have, they will have to earn more. In other words, they can’t buy on credit.
Lesson 3: Saving and interest
At around age 11-13 children’s financial education can shift from short-term saving goals to more long-term savings. They have high school and then college ahead of them. Introduce the idea of a savings account and explain how compound interest works (when you earn interest on your savings, as well as on past interest from your savings.)
And of course, teach by example: all these lessons will be wasted if you don't practice these lessons in your daily financial dealings.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable-- we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC