Teaching children to manage money - Finance - Brief Article

USA Today (Society for the Advancement of Education), August, 2002

Communicating with one's children is difficult for many parents, and talking about money is no exception. Furthermore, many parents are reluctant to talk about finances with their offspring because they hold the widespread view that personal finances should no more be talked about than sex.

Yet, perhaps one of the greatest gifts parents can give their kids--often far greater than outright gifts of money, according to the Financial Planning Association, Denver, Colo.--is to teach them financial life skills. Learning to manage money is fundamental in today's complex society and can give your offspring increased confidence and self-esteem. The benefits of this education accrue not just to children, but to their parents as well.

A reluctance to teach the value of money and discuss personal finances with your children can create real problems when it comes to estate planning. Experts say nothing breeds more animosity between heirs and their benefactors, as well as among heirs themselves, than keeping an estate plan secret. Families that have a history of discussing finances openly and teaching children the value of money will have much less difficulty communicating about the estate plan and making it one that works for all involved.

Another direct impact of the failure to teach children about money may occur when young adults return home to live because they haven't learned how to manage their own finances. Adults living at home can have a significant financial impact on their parents, who may stop saving for their own retirement or make other sacrifices in order to handle the added financial burden.

The key is to discuss and teach children about finances when they are young, perhaps by age four or five when they can count and differentiate coins. As they grow older, allowances provide a good avenue for helping them learn to save, spend, and give to charity. Use envelopes or jars where they can divide their cash into savings, spending, and charity. Explain shopping decisions you make, say at the grocery store. Let them make their own small financial mistakes, such as wasting allowance money on a poor purchase.

As they grow up, include them in day-to-day household finances. They don't need to know what you make exactly, but children should hear discussions, and perhaps even be consulted, about major financial decisions, especially those that affect the entire family, such as the purchase of a new home or car, or a family vacation. Include them in discussions that have a direct impact on them, such as clothes or college. Inform them about sacrifices that might have to be made if a parent is laid off. Keeping finances a secret breeds distrust and weakens communication in later years.

Set a good example through your own management of money, especially judicious use of credit cards and ATM machines. Nearly 60% of the high school seniors in a survey by the Jump$tart Coalition for Personal Financial Literacy reported that they learn the most about managing money "at home from my family."

Teach them the financial facts of life. Let them learn about investing, for instance, by having them actually invest in a stock or through a mutual fund, then track that stock or fund. Explain how investments grow over time. When they start earning money, open an individual retirement account for them and explain why they need to set aside some money for retirement. Financial literacy is an ongoing education.

A professional financial planner can help. As an outside, neutral adult, he or she can provide financial education directly to the child. Some planner clients even make working with a financial planner a condition of an inheritance.