Who Will Teach Kids Financial Literacy?
According to the T. Rowe Price 7th Annual Parents, Kids, & Money Survey from March 2015, 80% of parents don’t think schools are doing enough to teach kids financial literacy.
That means that parents are going to have to teach kids about personal finance and how to manage money. So far kids don’t think parents are great teachers. “Less than half of kids (46%) say their parents are doing very or extremely well at teaching them about money and finances” (Parents, Kids, & Money Survey, T.Rowe Price, Mar 2015).
Parents Setting a Good Example is One Way to Teach Kids Financial Literacy
You may not realize it, but you’re teaching your kids financial literacy by how you manage your money as a parent. Unfortunately, “40% of kids feel their parents use the “do as I say, not as I do” mentality when teaching them” (Parents, Kids, & Money Survey, T.Rowe Price, Mar 2015). Consider this short list and think about what you are teaching your kids about personal finance by the example that you set.
💳 Do you use cash or do use swipe the plastic card for everything you purchase?
📈 Do you follow a budget or do you complain about not having enough money?
👨👩👧👦 Do you discuss purchasing decisions with your kids and include variables such as quality and opportunity cost.
💰= 👮+👩🚒+🧑🏫 Do you complain about paying taxes? Or do you explain how taxes pay for public services such as police, fire fighters, and teachers?
🛍 Do you buy things on impulse? How do your kids determine if a desire to buy something is a want or a need?
How Your Example Affects Kid’s Money Management Skill
That’s just a few examples above. Now let’s review the consequences of a parent’s example.
💵 If you use cash, then your kids see money physically being exchanged for goods and services. Swiping a card is like waving a magic wand. Younger kids won’t make the connection. They could have a more difficult time understanding the value of money. For more on this specific topic, you can read “Avoid This Financial Mistake When Teaching Kids About Spending Money.”
📄 If you use a budget to plan your spending and maintain an emergency fund, then your kids will see how you follow a plan to manage money wisely. The alternative is to run out of money before the next payday. Then do without things that are needed or go into debt. “62% of parents do not regularly contribute to or maintain an emergency fund” (Parents, Kids, & Money Survey, T.Rowe Price, Mar 2015).
📖 If you discuss purchasing decisions with your kids, then they learn how to use reason when managing money. For example, would you rather spend that $5 on candy that will give you 5–10 minutes of joy or save it to go towards a $15 book that will give you days of joy?
🏷 If you explain that taxes pay for goods and services needed by the community and that the money comes from sales tax on what you buy and income tax from what you earn, then your kids will appreciate that it’s important to plan for taxes as part of your bill and part of your salary.
💎 Finally, if you make impulse buys without thinking through the cost and the impact on your budget, then how can you keep your kids from asking for every little thing they want and possibly throwing a tantrum when they don’t get it?
Setting the example is HOW you start teaching your kid financial literacy.
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