Kids and teenagers learn so many things in school that they may never use. From trigonometry to writing in cursive, a lot of the traditional core subjects seem less and less practical everyday. But somehow the topic of personal finance largely gets glossed over, leaving children with no choice but to follow in the financial footsteps of their parents — or worse, their friends.
Unfortunately, parents often fail to understand their critical role in teaching their kids to manage money. So millions are left with a large blind spot as they leave the house to fend for themselves at college or in the job market. It doesn’t have to be this way. With just a few small behavioral modifications, parents of any age or income level can become great fiscal role models for their children.
Setting a Budget
The simplest financial lesson is often the hardest to learn. While the complexities of life make setting a budget easier than following one strictly, there isn’t much to it.
You take your monthly income, subtract your fixed expenses and your variable recurring expenses, and the remainder is what can be put to savings and discretionary purchases. Really, the savings should not be negotiable, but the realities of today’s wages mean that some people have to cheat during lean months.
Cutting Costs
While you don’t have to share the details with your kids, the biggest benefit for them will just be understanding that keeping a budget is important. Key them in on the fact that you track your expenses, save your big receipts, balance your accounts and never go above certain thresholds.
Then teach them how to cut down on expenses. If they ask for an expensive cereal, you can tell them that it doesn’t fit in the weekly budget — not just lecture them again about eating too much sugar. Then show them the coupons you brought or how this week you are buying four packages of toilet paper because the store is having a sale. And let them know that doing this means you will have more money next month to buy the cereal they want as a treat.
Increasing Income
There are of course two sides to every budget: income and expenses. So it is great for children to learn early that, if you work harder and show some entrepreneurial spirit, you can then do more fun things with the money you earn.
If you are a teacher, maybe you can be an SAT test proctor on the weekend. If you have camera skills, you can shoot an event for a friend or local business. Or anybody can get started in the “gig” economy by doing sales work.
Then — and this is key — make sure your kids see how that extra income gets spent. When you take the family on a weekend trip to the beach, or just go to play a round of golf one Sunday, show them that you are enjoying it all the more because you worked for it.
Opportunity Costs
The discretionary spending area of your budget is the best way to include your children in the decision-making process. Lay out the costs of certain options and let them decide. Let them know that, sure, the family can go to the water park this weekend, but that means they cannot get a new video game for the next three months. Show them how much basketball camp costs compared to a new bike. Then let them choose one or the other.
If you treat your children like grownups, they will start to act that way. Life is a series of trade-offs. Do you want the nicer car or the extra vacation? Do you want the latest big-screen TV or a camera? Do you want two cheap toys now or one better one later?
Each time you say “yes” to one thing, you are implicitly saying “no” to many others. Too many teenagers go off to college not really understanding this and immediately get themselves into credit card or rent-paying trouble. As a parent, it is your job to do everything you can to prevent them from getting in over their heads.