Why Helping Future Generations Achieve Financial Stability is in Everyone’s Best Interest

Raising a child in today’s society can feel overwhelming and difficult. We may even feel jealous of past generations who did not have to deal with so many financial challenges. Whether you are justified in such reflections may be debatable, but there is certainly no doubt that raising your child is much more complex than it used to be. Parents of earlier generations needed to teach their children about earning a living, how to use money wisely, and the virtues of living consumer-debt free. Parents nowadays should, of course, continue to offer this same advice to their children, but they have many financial lessons to share with their children, teenagers, and even their young adult children.

What are the most important financial lessons parents should be teaching their children and when?

The old adage, “Do as I say not as I do,” does not work so great in most parenting situations. If you struggle to conquer your own financial demons (overspending, credit card debt, retail therapy, etc.), you may worry about coming off as a hypocrite if you try to teach your children healthy financial behaviors. Being open and honest about your own struggles will not make you look weak in your children’s eyes but rather someone who is continuously striving to improve their situation. Isn’t that what we want for our children?

While you should still strive to model healthy money management behaviors, it is completely fine to admit to making mistakes along the way regarding our credit, consumer debt, and even paying bills on time. So long as we do not blame others for our mistakes (which leads to a victim mentality), we open ourselves to greater progress in the future. Above all else, your children will notice your effort to keep trying. Be honest and proactive when discussing money with children. Let them know how important it is to you to be financially responsible.

How to Teach Financial Lessons in Early Childhood

• Check out your local library children’s books based on stories about money and budgeting. One of our favorite examples is The Berenstain Bears’ Trouble with Money.

• Work on your household budget in a place where your child can see you. Balance your checking account (and credit card and savings accounts, for that matter) and pay your bills when your child knows what you are doing. If she or he sees how important it is to you, it will be important to them.

• Ask simple questions when shopping about whether an item or service is a physical survival need, an important want, or a “facing fancy.” Human needs only include food and water, shelter and security, protective clothing, and (for some people) certain medicines or medical procedures. Important wants involve transportation and communication. Fancies include entertainment, diversions, toys, recreation, and most anything we can do for ourselves that we might pay someone else to do for us (e.g. dining out, nail salons, gyms, etc.).

• Make sure your child has a piggy bank or some sort of savings receptacle he or she can save money for things he or she may want to purchase down the road.

• Allow your child to manage their own money. This means that while you can and should make suggestions about what your child buys with money, it is more important for your child to learn from his or her own financial mistakes. Allow your child to make frivolous purchases, but follow up with delving questions such as, “How did you feel when the toy you bought broke after just an hour?”

• Be prepared to say, “no” if your child asks for money to purchase something they could have paid for on their own had they not spent the money on something else.

• Consider running a “Family 401k” by matching every dollar your child saves for at least 30 or 60 days

How to Teach Financial Lessons During Middle Childhood

• It is critical that you set up at least one savings account for your child by the time he or she is in middle school. Take him or her with you to the bank or credit union to set up the account so they can make a personal connection to the money being deposited.

• By middle school, your child should be much more involved in financial decisions your family makes about vacations, entertainment, and even shopping for clothing. While you may reserve the “veto” vote for you as the parent, you should allow your child to provide input. Follow up their input with questions about how to pay for the activity or item and how long it will last.

• At this age, you should help your child look for and take advantage of opportunities to earn their own income. This does not mean you sign them up for employment, but help them find babysitting, lawn mowing, poop removal, or even blog writing opportunities to each some spending cash.

How to Teach Financial Lessons for Teenagers and Young Adults

• Don’t help your child open her or his own credit card. See our post on the steps to guide your teen and young adult child before encouraging them to get a credit card.

• To help your child build his or her consumer credit rating, consider adding him or her to your credit card account as an Authorized User. Your child does not (and probably should not) even need to use the card to inherit some of your good credit.

• Explain and discuss the lasting and damaging effects of overdraft fees on accounts and allow your child to pay his or her own subscriptions.

• Discuss with your child her or his long-term financial goals (from education and home ownership to travel and transportation). Determine whether they understand how much money will be required.

• Consider providing your child with a monthly clothing stipend (allowance) and then allow him or her to do all of their own clothing shopping, including at back-to-school time. Be sure your child understands that you are completely ready to say “no” to their request for help if they spent their stipend on expensive items or on non-clothing. It may be a tough lesson to learn, but it will be a memorable one.