FINANCE 101 by First Horizon
By Courtney Potts,
Want to Teach Kids About Money? Avoid These 5 Common Mistakes
Research by the Council for Economic Education (CEE) indicates that young adults who receive formal financial lessons as part of their school curriculum are more equipped to feel in control of their financial lives and to master basics like how to manage credit and how to save money.
As a result of the lack of a formal personal finance curriculum, the duty of raising financially literate kids falls on parents. While concepts like saving money and spending less than one earns may seem like easy lessons to instill, there are some right (and wrong) ways to communicate these messages.
Avoid the following common mistakes that well-meaning parents often make to help ensure your kids absorb the financial messages you intend to send through your words, actions, and financial habits.
Mistake #1: Underestimating how much young kids can understand about money.
The PBS NewsHour reports that kids can understand concepts like exchange, choices, and value as early as three years old. Further, the attitudes they form until about seven years old can influence how they view their relationship to money throughout life. A task as simple as asking a young child to help you put loose change into a savings jar can communicate a concept like value, and that money is currency that's worth respecting.
Mistake #2: Not giving kids a chance to learn the value of hard work.
Kids see parents go to work or school each day – but they don't understand the value of hard work (or how it impacts your family's lifestyle) if they cannot experience it.
Let kids "own" one or two basic household responsibilities beginning when they're about four years old (like putting dirty clothes in a hamper or dusting) to bring these abstract concepts to life. The Washington Times cites a study that has shown a direct correlation between children who have such responsibilities and their future professional and personal success.
Mistake #3: Forcing kids to save money.
Parents who force kids to save may unintentionally teach that money is something to fear losing. Help kids feel empowered by giving them choices about what they do with their money, and they'll soon realize that financial decisions are essentially a series of trade-offs..
Mistake #4: Including shame in your money lessons.
Parents may not intend to shape kids' financial attitudes when they utter phrases like, “We can't afford that," or, “I work too hard for my money to spend it on that," in regard to a child's request, but such phrases can create negative financial attitudes.
Instead, choose words like, "Maybe we can make a better choice," to communicate that the earner is in control of how they spend their money.
Mistake #5: Not teaching kids about taxes and the cost of debt.
Once kids are old enough to have a job, they need to understand what taxes are and what taxes mean in their financial lives. And, as more young people participate in the gig economy, the responsibility for paying taxes shifts away from the employer and onto the individual.
Correcting even a few of these 5 mistakes can be critical to shaping how your children will feel and behave around money as they become young adults. By sharing and learning with your kids today, you're making an investment in their future financial well-being.