The economy has been slowly recovering, and the stock markets have reached historic highs, but for many, times are still tough. First we had sequestration, then the government shutdown, and the question of raising the debt ceiling is ominous. Even before the current government furloughs, 74% of American workers were having difficulty affording gasoline – 65% were experiencing problems affording heat and electricity. People are choking in debt, losing jobs and homes, and in many cases, everything. Now more than ever, you, as the parent, need to teach your children the lessons they’ll need in order to avoid some of the financial disasters that have struck our generation.
Most parents can identify with wanting to raise secure, confident children. But today’s parents, unlike previous generations, must balance that goal against the high pressure consumer culture — one that encourages many children to feel deprived if they don’t have the latest smart phone, the newest tablet, or the most expensive pair of sunglasses — and navigate financial ups and downs.
Are we preparing our children to live in the real world? 81% of parents feel it is their responsibility to teach their kids about money and savings. 51% of parents give their children an allowance, but only 4% require them to deposit money into a bank account. Only 30% of children regularly give some of their savings savings to charity.
Obviously, we as parents want to teach our kids how to avoid falling into the same money traps that we did, but research done by Charles Schwab & Co. showed that only 34% of parents taught their kids basic money skills like balancing a check book, and 29% taught them how credit card fees and interest work. According to the same study, 70% of parents taught their teens how to do laundry—not that laundry isn’t important—as long as you have the money to buy the clothes!
Transparency is essential. Parents must discuss money – especially if there is a change in income level – openly with their children to reduce the anxiety that can come with change. Approach the subject directly, explaining things in simple terms. Explain to younger children that we get money by working and sometimes money is more plentiful than others. Older children can understand the nuances of the situation and can even participate in finding solutions.
Tell them that things have changed – for a while the family will not be able to make all the purchases they are used to. Lead the discussion on how each family member is going to help get through the tough times: who will give up which extras, who can earn extra spending money or help with additional chores so the parents can hunt for other income. Make it clear that everyone, including parents, has to sacrifice some things.
Very young children are readily adaptable. If there is a change in circumstances, and there is normally a car that takes them to school, but the next day there is no car, they may get upset, but they will accept it. At a certain age, kids begin to associate possessions with status – certain name brands become more desirable than others.
Five Important Steps to Take:
- Take responsibility for teaching your kids the financial facts of life. Don’t assume that they’ll learn this at school—they should—but very few states require personal finance courses to be taken.
- Ensure their understanding of the principle—”If you don’t have the money, you can’t spend it.” Wow, what a concept! Remember to reflect this attitude through your spending habits, as well, by not charging unnecessary things to credit cards.
- Teach them the concept of “finite.” Explain what a budget is—“money in and money out” (emphasizing rule number two). Start young teens on a clothing budget and make them accountable for sticking to it.
- Make sure your kids understand the difference between want and need. You will provide their “needs,” however; they will have to earn the money toward their “wants.”
- Remember those “grunt” jobs we all had as teens? We bagged groceries, delivered newspapers, pumped gas, etc. Today, many of our young people in upper-middle class families don’t think about any kind of work until they graduate from college, which is too late. We learned a great deal from those experiences—allow your children to have that same privilege.
If you have given your kids things because you feel guilty you are not spending enough time with them, you are sending a message – “Things can replace love and time with parents.” An adjustment in status is easier if the family is used to open discussion and already has a clear sense of priorities in the relationship of money, self-worth and family values. It is as basic as “Things are just things,” and “You are not who you are because of what you own or how much money you have.”
Neale Godfrey is the New York Times #1 Best Selling author of 27 books, and financial literacy curricula for kids and parents. She created the topic of “kids and money” while President of The First Women’s Bank when she opened up The First Children’s Bank, and an Institute for Youth Entrepreneurship in Harlem in 1988.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.