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Many people, no matter what their age, think that personal finance is a boring subject. Parents might find this topic difficult to discuss with their kids. But good personal financial skills has become as vital as they ever are in today’s new economic reality – where most employment are at-will, credit is tightened, and college graduates leave school with $20,000 in average student loans.
So how do parents get their kids interested in money management? How can parents teach children to value the virtues of delayed gratification when the future and retirement seems so far away? How do parents ensure that when their teens go to college, they will take on debt responsibly and recognize both the benefits and dangers of credit use?
I am not a parent, but I have been a teenager (who survived that awkward stage, thank God!). Here are some of the ways that my parents have helped me develop an understanding (and love) of the exciting world of personal finance.
· Keep teens informed on family financial decisions (to the extent appropriate). When I was in eighth grade, my mother showed me a print-out of our mortgage and showed me, line by line, the benefits of prepaying a mortgage. Instead of Mom harping on the need to save, I saw for myself that a $10,000 early payment in the first couple of years of a mortgage can save over $30,000 in interest costs.
· Explain the financial rationale behind everyday actions. For example, when you take your teen to go shopping for groceries and you select canned soup from the store brand instead of a national brand, explain why you are doing so – i.e. you think the store brand tastes just as good, and will bring you a $2 saving for 4 cans. Or, on a bigger scale, when you decide to buy a Honda instead of a BMW, or buy a used car instead of a new car, explain the factors that went into your decision, and what you gained (savings), and what you gave up (new car feel, luxury coupe, etc.).
· Talk about money with teens, especially when they bring it up. If your teen comes home and talks about Mindy Money’s big house party, or the vacation she took with her family to Tahiti, take that as an opportunity to talk about the social impacts of money. How does seeing someone else’s expensive things make your teen feel? (This would be a great time to introduce the Keeping-Up-With-The-Joneses topic!). Allowance can also be a great way to help teens manage their own money. When I was in high school, my allowance was $3 a day for lunch, every weekday. That meant sometimes I skipped meals to save money - not quite the healthiest solution, but at least it taught me that it's not easy to save money!
· Teach teens about trade-offs between time and money, and the different income levels of various career paths. Maybe Mindy Money’s mother is a corporate lawyer – she obviously has very different income level than that of a teacher’s. You can explain that when pursuing a career, one’s income should be a factor in the decision (albeit not the only factor). Perhaps you are the teacher, and you can acknowledge that even you earn a lower salary, there are other things that make the profession worthwhile to you (i.e. social good, more flexible schedule, etc.). Another benefit of having a realistic view of salaries – a student who wants to be a social worker will probably be less likely to take on $60,000 in debt for a private college.
· Show your teen the impact of compounding interest. Just show them! When I realized that every dollar
