by Kate Maier – Central Planning, Wealth Enhancement Group

In the January 25, 2010 issue of Time magazine, there was a short article detailing high school students’ falling financial literacy scores and the actions that some school districts have taken to address this decrease in knowledge. (“Cash Crunch: How to Teach Kids about Money”, page 55). It appears that conventional wisdom isn’t doing the trick anymore. Despite the addition of money-management courses to some high school curriculums, the majority of students graduating from high school still do not know how to handle their personal finances.

Because of these findings, parents should not be leaving the financial education of their children up to the schools, nor should they be waiting until their children reach high-school before educating them. The earlier a child learns good financial habits, the better off he/she will be when it is time to become financially independent. Parents can help by showing financial responsibility themselves and by sharing their saving and spending methods with their children.

First, be frank with your children about financial issues. The more they become acquainted with spending and saving, the less daunting it is as they get older. If they get an allowance, insist that they save a certain percentage of it. Open a savings account for them, and introduce them early on to checking, savings and CD accounts. As they get older you may even want to bring them along to meetings with your financial advisor so that they are introduced to other methods of saving, such as stocks, bonds, annuities and IRA accounts.

Also, have your children save their money for items they want, be it a new bike or that pair of jeans they have to have. This will hopefully start smart savings habits as well as teach them the satisfaction of earning what they get, instead of having you buy it for them. This can also lead to a discussion about loans and credit cards. Many people get in trouble as teenagers and young adults when they are suddenly inundated with credit card offers, and the concept of “spending within your means” escapes them, as “their means” tends to be the credit card limit instead of what they can afford in monthly payments. If your children are already used to both saving and paying back any money they’ve borrowed, they are more likely to be able to handle their new credit cards without much problem.

There are many ways to teach your children financial responsibilities, and the ideas listed above are just a few up them. If you would like help teaching your children financial discipline, contact your Advisor. He or she would be happy to help you come up with a plan.