Teaching Your Kids About Personal Finances

April is “National Financial Literacy Month” in the United States.  In 2003, the U.S. Senate passed a resolution declaring April Financial Literacy for Youth Month, and in 2004 the Senate — apparently concluding that a wider audience should be getting that message — broadened the concept to National Financial Literacy Month.  The underlying concept is to use April to teach Americans how to establish and maintain healthy financial habits.

1057a15b2bc0402Like so many well-intentioned Senate resolutions, Financial Literacy Month hasn’t exactly worked out as planned.  April is a good choice — the month where Americans settle up and pay their federal, state, and local taxes is bound to make people focus on their finances — but the statistics and surveys show that Americans, on average, don’t manage their finances very prudently.  They don’t save for retirement, they have too much debt and use too much of their disposable income paying interest on that debt, they don’t live on a budget, and they haven’t put anything away into a “rainy day fund” to allow them to deal with an unexpected crisis.

When it comes to financial literacy, most Americans are still in the pre-school stage.

Recently I ran across an interesting article on how to teach your kids about financial literacy.  The article identifies five “life lessons” that can help to put children on the road to financial self-reliance.  The very first lesson is giving your kids an allowance, earned in part by doing chores around the house, rather than being given money or a credit card whenever they ask.  That basic concept reinforces two important adulthood realities — money has to be earned, and it’s a finite resource that doesn’t appear by magic and needs to be spent with care.  Other lessons include having your child save for a big purchase, getting a first job, going to college, and moving out — all of which have their own, important personal financial elements that will help to give your offspring a solid base on which to address their own lives as independent adults.

These are good lessons, to be sure, but I think that perhaps the most important lesson is what a child learns by observing her parents and other adult family members.  Do they behave responsibly?  Do they have jobs?  At the end of the month, are they fighting about money or fretting about how they are going to pay the bills?  Do they talk about finances at home, and discuss whether to buy a new car or use the money for some other purpose?  Have they established a college savings account or taken other long-term savings steps?  All of these are ways of conveying a crucial message:  people do have some measure of control over their personal finances, they can make choices, and financial matters aren’t something to be discussed in secret but rather are part of the backbone of any family.

Some of us, myself included, were fortunate to have had good family role models that taught us, by how they lived their lives, about the importance of hard work, saving, and investing.  They didn’t need a Senate resolution to tell them that setting a good financial example would help their children and grandchildren to live responsibly and within their means.

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