Irresponsible financial decisions are not always the result of poor judgment. In fact, many young adults today find themselves in the midst of a financial crisis due to a lack of monetary knowledge:
“Recent studies show that emerging adults are often mismanaging their finances—and that this mismanagement is associated with a host of negative outcomes,” as reported in 2016.
This begs the question, then, of how we may best equip our children with the knowledge and resources they need to manage their finances with confidence as they grow. Here is what we recommend:
The first foundational step a parent should take with their child is imparting the wisdom that money does not, in fact, grow on trees. That is to say, as a child grows older, it’s important to teach them that money holds value and is also not a limitless resource.
An article published by the University of Minnesota recommends that parents first “focus children’s education about money on the baseline concepts of earning, spending, saving, borrowing, and sharing.”
Note, however, that while some of these lessons may begin as soon as a child begins to form full sentences, the concepts of borrowing and sharing may take longer to develop as a child builds their social skills both before and throughout elementary school.
The Application of Allowances
As soon as a child is old enough to begin contributing around the home, many parents find that providing their child with an allowance provides them with ample opportunities to begin to apply the aforementioned concepts.
“Children learn about money by doing,” according to the Federal Deposit Insurance Corporation (FDIC). “If your child operates a lemonade stand, has a cookie sale, dog sits, or babysits, use these occasions to teach about earning, spending, saving, and donating.”
Additionally, by providing your child with an allowance, you can begin to teach them the importance of saving a portion of their earnings for long-term goals. Not only will they learn by seeing that the money they set aside can grow into something significant, but it also teaches them not to spend every cent they earn for immediate gratification.
Finally, as your children grow into teenagers, their lessons with allowances can roll over into their first summer job(s) when it comes time to pay for gas money or other individual expenditures.
Moving into the Monetary Future
When it comes to money, every cent counts — as does every moment you spend guiding them toward responsible choices that account for their future goals and endeavors.
Thus, the Consumer Financial Protection Bureau (CFPB) suggests that the following family events may provide ideal opportunities to teach your teenagers/young adults about how best to strategize for long-term circumstances:
- Adopting a pet
- Purchasing a new car
- Paying with/paying off a credit card
- Purchasing a new home
- Paying monthly bills
In all, no two families are going to find themselves in the same financial situation, meaning no two families are necessarily going to teach their children about money in the same way.
That being said, our relationship with money is first shaped by how our families interact and utilize it, and we encourage you to involve your children in the process as you deem appropriate. This way, they’ll be equipped with the financial resources they need to build themselves a secure and abundant future!