Financial Education Basics
by Kirk Hoffman
For many children, basic financial education is not part of their school curriculum. Many adults didn’t have this offered either and generally learned from their parents or on their own. Here are some financial education basics that you can share with your children to help them be better prepared.
Clarify your financial experience
Share your own perspective on money, including how you got to where you are now, your views on cash management, debt and liquidity, and how your outlook has changed over the years. Sometimes the discussion of financial matters is uncomfortable or considered taboo. Being open about financial issues is a great benefit for your children and can help them avoid mistakes that you might have made. Let them know if you’ve managed things yourself or if you’ve had a financial advisor.
Establish and maintain a simple budget
Budgeting in its most basic form is just a plan for spending. Teach your children to think about how their purchases impact one another and how the budget can help them make better spending decisions. You can use anything from a simple spreadsheet to an online tool like Mint.com.
Encourage savings and investing
Saving and investing are tools for reaching financial goals. Explain different saving and investing alternatives. Share the choices you’ve made in your own plan.
Establish a bank account
Help your children learn what a savings and checking account are. Show them how to view the accounts, how to make deposits, withdrawals, transfers, and how to write a check. Explain how to balance their checking account. Teach them how to read a bank statement. Get them in the habit of reviewing their account regularly.
Learn about credit
Explain how credit cards work and how you feel they should be used. Explain how mortgages, car loans, and personal loans work. Discuss how to build a positive credit history.
Stress the importance of insurance
Encourage your children to establish an emergency fund. Help them understand the importance of homeowners and auto insurance, life insurance, disability insurance, health insurance, and long-term care insurance. Share how you have used insurance in your own plan.
Encourage retirement planning
The earlier you start planning for retirement, the more funds you will accrue. Explain how Roth and traditional IRAs work. Talk to your children about company sponsored retirement plans like Roth and traditional 401(k) plans and how to take advantage of company match offers.
Develop financial relationships
If you have a financial advisor, give your children the opportunity to meet with him or her on their own. This can give them the opportunity to ask questions they may be embarrassed to ask when you are there. Use your financial advisor as a resource to help explain any of these issues.
Don’t take for granted that your children know the basics. Discussing these with them is a good way to see how much they already understand and it allows you to share your values in these important areas.