Children And Money, Financial Planning
July 22, 2021
What Parents Must Do Better
I hope we can agree that sending a young adult out into the world with a solid grounding in how to make smart financial choices is a core requirement of good parenting.
Yet it seems many parents are dropping the ball on this crucial life skill. T. Rowe Price reports that 80% of parents agree it’s important to teach kids about money, yet 40% of parents said talking/teaching about money makes them uncomfortable.
What most parents want is to not have to deal with it; nearly three in four said money stuff should be taught in school.
Look, I am all for personal finance being part of the curriculum, but that in no way excuses parents from their central role in this education. And to be practical, it is the rare middle or high school that has personal finance as part of the core curriculum.
And you better believe your kids feel let down. Four in 10 teens in the T. Rowe Price survey gave their parents a below average grade for teaching them smart money habits.
Here’s how to do better.
Teach the Power of Compound Growth. Compound interest is such a crucially important concept to understand. Every teen should understand the power of compound growth of a dollar saved. This free government calculator is a fine teaching aid.
Explain the Price of Borrowing. Don’t make this abstract. Pull out your mortgage, or car loan, or credit card balance, and walk through the cost of borrowing. There are free online calculators you can explore together to see the difference between “principal” payments and interest. If your child will be taking out student loans for college, you must make sure they understand not just the cost of the loan, but the cost of asking for deferment or forbearance once they enter the repayment period. The interest they don’t pay during deferment or forbearance is typically added to the principal amount of the loan. That’s how long balances grow after graduation.
Stand in Your Truth. I have a feeling that for some parents its difficult to talk about money because they know they could be doing better themselves. Overspending is rationalized on wanting to give kids every opportunity and everything they want. But when that causes a household’s finances to be a mess, how is that truly helpful?
There comes a time when you need to make a decision about whether you are strong enough to stand in your truth and do what is truly best for your family’s future. Do you live below your means but within your needs? Are you able to say no out of love, rather than resort to always saying yes out of fear? Are you going to prioritize saving for retirement over paying for their college, and work together as a family to find the school that is the best financial fit for your family?
As a parent you have a unique role to play in your child’s financial education. There are plenty of online resources for learning the basics of savings, investing, borrowing etc. But only you can teach through example. I hope you choose to be an example of how doing what is right, but perhaps not easiest, is the secret to traveling the road to financial freedom. And that you set your kids on that road as early as possible.
Saving, Family & Estate Planning
Credit & Debt, Saving, Investing, Retirement