Lesson 5: Adults, Children And Money...How Much Is Too Much?
While money should never be the focal point of a family’s life, it does have its important place in familial interactions, and children must be taught about money, how to use it properly, what not to do with it, and what consequences might arise from the unwise use of this resource in the same way they are taught about owning their first car, having that first love-interest, or working hard in school and earning good grades. While not every situation should be turned into a money lesson, many situations lend themselves as teaching opportunities, and should be used thusly.
For example:
- Children must know the basic concepts of why money is valuable, why it should be saved, and why is should be spent wisely
- Children must know that sometimes it is ok to borrow money, for a big, long-lasting purchase for example, while borrowing money, especially from credit cards, for short-term use items is usually not wise
- Children must be acquainted with the ideas of saving and investing money
- Children need to be involved in grocery store conversations dealing with the prices of groceries you are purchasing, comparing brands and packaging size, and having to make choices when deciding to purchase one item over another.
- Older children need to be keenly aware that the things we all take for granted, i.e. running water, electricity, heat, etc. are not free, but must be budgeted for carefully.
- Children of all ages must know that money is a limited commodity and does not come out of walls in unlimited quantities.
- Children must see you deal with money responsibly; i.e. shop sales, research brands, clip coupons, delay instant gratification, discuss bigger purchases with other family member, in short, you must practice what you preach!
If you are not sure about your own, personal, money IQ and want to find out before you embark on teaching your youngster, why not take the US Securities & Exchange Commission’s Money $marts test?
Easing teens into investing
Ask your teen at what age s/he would like to be a millionaire. Calculate how much money s/he would have to save to make this happen. (1) Ask her/him how soon s/he would like to buy a car, and then calculate if her/his timeframe is realistic. (2) Does s/he want to go to college? (3) When does s/he want to leave home and have her/his own apartment? (4)
Chances are, by the time you mention the “car” question, you will have your teen’s attention. Teens already understand the necessity of saving, but they need to understand that saving needs to begin to go farther than just a car or an expensive set of sneakers. Teens need to understand that they will need to begin to save for their next steps in life, such as starting a family, buying a house, starting or buying a business, early retirement, travel plans, etc. Putting money into savings accounts is good, but will not assist them in reaching those long-term goals while they are still young enough to enjoy them.
Investing, in and of itself, can be a daunting task for many adults, thus teenagers need to be mentored early on how to invest successfully, cautiously, and deliberately. Your teen will now need to become acquainted with three staples of investing: stocks, which are pieces or shares of a company, bonds, which are funds an investor lends to a company as an interest-bearing loan which the company will eventually repay, Treasury Bills, which are similar to cash investments and which have low rates of interest, and Mutual Funds, which are investment companies, which use money from their investors to invest in a combination of either stocks or bonds or both. Teens need to be taught that some investments will offer higher returns but also represent higher risks, while other investments offer lower risk, but also lower returns. Teens need to see that in order to be a wise investor, one must be a diversified investor. A great tool to use is a workbook put out by Merrill Lynch. (5)
For further, exhaustive, lessons on investing (both useful for adults as well as teens) please visit Young Investors.
