Your Kids Won't Learn About Money In School, So It's Up To You

How smart will your kids be about money once they reach adulthood? The answer to this question depends on you and the lessons you teach them. With lessons on personal finance virtually nonexistent in today's high-school curriculum, it becomes more important than ever for you to emphasize the importance of financial responsibility. In fact, in a recent survey by T. Rowe Price, only 3% of respondents reported learning about saving and spending habits in school. With this in mind, here are some very important things to help you better prepare your children to deal with their own finances.

Source: 401(k) 2012

Talk about money
About three-fourths of parents say they have regular conversations with their kids about money, but they might not be talking about the right things. For instance, less than 40% of parents involve their children in conversations about family savings goals.

There are a bunch of very important topics to discuss with your kids. Some topics not well-covered by parents include discussing how banks and credit cards work, how to manage money, inflation and why prices go up over time, setting savings goals, and investing.

Discussing the family's financial situation is also a good idea, but seldom done, as only 40% of parents feel it is very important to discuss it with their children. Although it may seem a little uncomfortable at first to talk about your income and debts, it can give your kids the only firsthand look at budgeting and financial planning they are likely to get.

Set a good financial example
Talking about money is definitely a step in the right direction, but can be ineffective if you don't display good financial habits yourselves.

For example, only half of parents save regularly for their own retirement. Less than half purchased a life insurance policy. Worse yet, only 26% of parents have an up-to-date will.

These are things every parent should be doing and letting their kids know about. If your son or daughter sees you setting a portion of every paycheck aside to invest, they'll think it's what you're supposed to do. If you set savings goals for yourself, make them aware of what some of your goals are.

Let your children learn from your mistakes
Did you take on too much debt earlier in your life and are now paying the price? Did you wait too long to begin investing? Are you a big spender?

Don't hide your financial shortcomings from your children. Let them learn from your mistakes. For instance, if you ran up massive credit card debt in college, let them know this (especially if they are going to college soon) and tell them about the consequences.

Did you wait until you turned 40 to begin saving for your retirement? When your kids begin their working life, let them know and use it to help discuss how much easier their own retirement planning will be if they start earlier than you did.

Is an allowance a good idea?
The short answer is yes, but only if you do it right. A little more than half of U.S. parents give their children an allowance, mostly paid in cash. An allowance can be an excellent tool to learn the true value of money, but a lot of parents use it as a supplement to other things they buy for their kids.

Frequency is important. If you give your child an allowance once a week, try giving them a month's worth at a time instead. If they spend it too soon, tell them a firm "no" if they ask for more.  The most important thing to do with an allowance is to stick to the schedule and amount agreed upon. However, this is easier said than done, as less than one-fifth of parents claim they are "not a pushover" when it comes to their kids asking for money.

They're not going to learn it in school!
As I mentioned earlier, a basic financial education is severely lacking in most U.S. public schools. Only 12% of kids report learning about investing in school, and even less learn about managing their own finances.

Because of this, it is of paramount importance for parents to teach their kids valuable lessons on money and investing. When your kids leave home and go out into the world, you'll be very glad you gave them a solid understanding of how the financial world works when they say "no" to credit card offers in college and have a good start on retirement savings in their 20's.

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