Positively Parenting: Helping children learn financial responsibility

Editor’s Note: Once a month, we pose a question submitted by one of our readers to a local professional or expert regarding parenting issues. For this issue, a reader submitted a question about preparing her children to be financially responsible. We turned to Daniel Island resident and financial advisor Stephanie Mackara for the answer.

QUESTION:

“I have three children; two are teenagers and one is 8. I would like to get tips on how I can prepare my kids to be financially responsible. Are there things I should be doing/teaching when they are at certain ages?”

ANSWER:

What a fabulous question and very timely. The latest Survey of the States review on financial literacy reports that only 17 states require students to take a financial literacy course, even though 100 percent of our children will become financial decision makers. The burden to teach children rests squarely on our shoulders as parents. Fortunately, many of the lessons we need to teach our children are present every day. I would suggest instead of long deep meetings to discuss money, weave the concepts below into your day to day interactions with your children as these opportunities present themselves.

THE DIFFERENCE BETWEEN NEEDS AND WANTS

The core of good financial decisions starts with individuals understanding what they need versus what they simply want or desire. Often when children are asking for the newest, latest and greatest “thing,” they will say “I need x-y-z.” I have introduced this idea to my son, who is now 11. I will say – do you need or want that? Now, he self-corrects. You can start this conversation as early as possible. Toddlers will take a while to catch on, but they eventually will. This critical distinction will cause your child to pause and be mindful of the way they spend their money.

OPPORTUNITY COST

This step typically follows the needs versus wants discussion. After it has been determined that something is a want, what should follow is a discussion about opportunity costs. “If you buy the poop emoji pillow, remember, you won’t be able to get the unicorn beanie boo.” OR “If you buy the latest NBA 2K18 video game, you won’t be able to get the newest basketball sneakers.” No matter the age or the desired item the lesson is that money is not endless. A purchase of one thing, impacts their ability to obtain another. This teaches discipline and responsibility.

MATH & MONEY IN THE REAL WORLD

I understand that even the word “math” makes many children and parents cringe, however there are a few basic concepts that should be introduced and reinforced throughout your child’s life. We are living in a virtual world. Everything is paid for with plastic, kids can purchase things with the click of a mouse; they are so disconnected from the decision making and cost of products. Here, I say go old school - go back to paper money and basic math concepts. Start with your toddler and get them a cash register where they can learn to exchange money for things. As your children get older, have them pay for items with cash. This will teach them how to budget for items, add together costs of multiple items and provide hands on experience of taxes. In addition, when you go out to dinner, have your children calculate the tip on your bill, if you travel somewhere where there is a foreign currency, have them calculate the cost of items using a conversion rate. Every day is an opportunity to take basic math skills and turn them into prudent money management techniques.

DELAYING INSTANT GRATIFICATION

This is an issue many adults haven’t mastered, and you may inadvertently be passing this habit onto your children. Have your child weigh the opportunity cost and then take some time to digest the purchase. Making impulsive purchases throws all discipline out the window and sets your child on a very treacherous path. Use yourself as a model. If you are shopping in the store and find a pair of shoes you really like, but don’t “need,” explain to your child that you really want those shoes but have decided not to get them. Either because they don’t fit into the “budget” or you’d rather not spend the money on something you don’t need. The more they see you practice good habits, the more they will pick them up and practice.

SAVE, SAVE, SAVE!

Save a portion of every dollar you earn. Whether the money comes from a job, the tooth fairy or birthday, have your child put aside a percentage – 10 to 30 percent. Once your savings reaches a certain level, open a bank account, share statements with your child, explain what interest and fees are. Once the balance is large enough, begin to invest. If you have a college savings account for your child, this is the easiest way to teach them about the amazing magic of compounding interest/return, that is simply - time helps money grow. Show them that regular, monthly or annual contributions, into an investment account will produce more money. If your child earns income, have him or her open a ROTH IRA account. This type of account grows tax free. Have your child research what types of investments they should buy. Morningstar.com is a great resource for investment research. A child who saves, becomes an adult who saves. Savings creates wealth.

RESOURCES

For children under 12, the Moonjar.com is a great way for kids to save and visually experience saving a portion of what they earn. As children get older, the book “The Richest Man in Babylon” is a phenomenal resource.

There are lots of good resources available for parents and teachers, but the best teacher is experience. Engage your child in the process, make them responsible for their buying decisions and help them think through their decisions. Remember, your children won’t always make the best decision, and that is okay. The important thing is that with repetition and experience, they will become successful stewards of their financial futures.

Stephanie Mackara can be reached at smackara@charlestonia.com or charelstoninvestmentadvisor.com. If you have a question for Positively Parenting, please send it to Katherine Smith at katherine@thedanielislandnews.com.