The bad news: Our most recent Great Recession and the things that precipitated it have exposed our desperate need for financial literacy in America as never before. The good news: The Great Recession and the new economic realities resulting from it has created a generation of teens more hungry for financial education than perhaps any generation before it. They’re ready to listen. But when it comes to teaching kids about money, as parents, teachers and mentors, we must be equally ready to not only talk, but initiate the conversation. Here are some ideas to help you do just that, with the goal of teaching our teens to become financially responsible adults.
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The worst thing you can do is to avoid or delay the talk. Teaching kids about money may mean breaking generations of family tradition making it a taboo topic. Your parents and grandparents never had to face the kinds of personal financial responsibilities that we face, and our children will continue to face. They may not have known better, but we do. It is our responsibility to prepare our children to handle money well. In fact, closing the much lamented Black Wealth Gap requires us to see to the financial education of future generations as well as commit to improving our own financial literacy.
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Accept that you must set the example. For them to be more responsible with money, you must be. If financial literacy and honesty is not a priority for you, it won’t be for them. For example, your kids should see you reading at least one money book a month, and you should be sharing and discussing such books with them as well. Go a step further and buy age-appropriate books aimed at children and teens specifically focused on boosting their financial literacy. Don’t just hand them out and walk away–read them together. Young people within your sphere of influence should also see you reading Black Enterprise and other financial publications, and visiting Black Enterprise.com and other sites that address personal finance and business topics.
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Teach our youth to value earned money over gifts or loans. The latter have their place–and their price. The best money is earned, not freely given. Loans must be repaid, often with interest and fees. Gifts nearly always have strings attached (which is why your parents wouldn’t allow you to accept gifts from your friends without checking with their parents, if at all.) Once you’ve provided for their basic needs, require your kids to work for everything else, by getting on the honor roll, doing extra chores, starting a business, picking up age-appropriate part-time jobs–anything that requires them to put in time and effort to get paid.
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Be open about setting financial goals and priorities for your household. When it comes to teaching your kids about money, transparency is a powerful tool. There’s no better way to help your kids develop a comfort level with saving and investing for long-term goals. Your kids desperately need the reality check of reviewing household bills with you each month in order to understand the true value of money and that cable TV, water, light, food and shelter are not free. Instead of treating the term “budget” as a dirty word, encourage your kids to develop spending plans and stick to them. Find ways to reward such behaviors, for example, by agreeing to match, dollar for dollar, savings toward an agreed upon long-term goal, such as college. Does she want $1,200 dollars for a new dress for the senior prom? Agree to pay for half, but only if she presents a plan to come up with the other half between now and when the money is due. Better yet, encourage her to find a dress for a lesser amount, perhaps by agreeing to match every dollar she saves with a contribution toward a long-term savings goal.
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Teach them the difference between smart money and dumb money. In his latest book, The Wealth Cure: Putting Money In Its Place, actor and best-selling author Hill Harper
explains that dumb money is spent on things that decrease in value while you sleep, while smart money is spent on things that increase in value as you sleep. Money spent on credit card interest payments is dumb money. Spending on investments that grow in value and pay interest and/or dividends is an example of smart money. Helping your kids to see the difference will go a long way toward their making smarter money choices.Click here to continue reading…
Teach kids that spending is not the only thing they should be doing with their money. Require them
to put at least 10 percent of any money they get toward savings for long-term goals such as college. Another five to 10 percent should go toward charitable giving, such as tithing at church or buying clothing or food for donation to the less fortunate. That leaves up to 80 percent for them to spend, which is quite a lot given that you are already providing for their basic needs.Click here to continue reading…
Remove the stigma from the phrase: “I can’t afford it.” Teaching kids about money means taking into account the emotional factors we all associate with money and spending. One of the biggest psychological/emotional factors behind our failure to live within our means is attaching feelings of shame, disappointment or unworthiness to the idea that we can’t always have what we want when we want it. Remove the self-judgement associated with “I can’t afford it” by adding the words “yet” or “right now.” Then help them to come up with a plan to budget and save for what they want.
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Using credit as a substitute for money you don’t have or have access to is credit abuse–teach our kids that it’s unacceptable. Credit is meant to be a convenience to help you avoid carrying all of the cash you have access to, not a way to spend when you are broke. Learning and practicing this simple lesson alone would prevent tens of thousands of our kids from beginning adulthood saddled with credit card debt. Taking on student loan debt should be a last resort for financing a college education, but does fall in to the category of smart money. Excessive credit card debt is a classic example of dumb money.
Want these lessons to stick? Then, again, we have to set the example. Remember, kids, and teens in particular, can spot hypocrisy a mile away, even if they are too respectful to call you out on it. What we preach to them about handling money we also have to practice ourselves.