According to a Cornerstone Credit Union League (League) survey, 94.3 percent of parents in Arkansas, Oklahoma and Texas indicated their children have a savings account. When asked if they encourage saving or help their children save, 100 percent of parents responding said they did, and 88.6 percent said they discuss financial topics such as saving, budgeting, and responsible spending with their children.
Are parents doing enough to ensure that their children are prepared to manage their money when they reach adulthood? How can parents better equip their children to manage their finances responsibly? Who is responsible for financial education, parents, schools, or both?
National statistics paint a bleak picture of financial literacy among young people. According to the National Bureau of Economic Research, only 27 percent of young adults possess basic knowledge of interest rates, inflation and risk diversification.
Additionally, parents are often unaware of what aspects of financial management are covered in school or even if those topics are taught. According to the League’s survey, when asked if their child’s school teaches financial literacy, parents responded:
Yes 25.7 percent
No 34.3 percent
Unsure 40 percent
“In life, stuff happens,” says Cornerstone Credit Union Foundation Executive Director Courtney Moran, “The key to dealing with financial challenges that might arise is to be prepared.”
Committing to a savings plan, establishing and adhering to a responsible spending plan (or budget), learning how to balance a checkbook and developing a solid understanding of credit and how to manage it, Moran says, will empower to consumers to better cope with the unexpected.
Moran urges parents not to assume financial concepts like managing a checkbook or budgeting are learned willingly. “Just because you have been doing it for years, does not mean that it is an intuitive ability. Take time to sit down with your children and explain the importance of budgeting, saving, and differing wants form needs,” Moran suggests.
Moran offers the following suggestions to teach your children basic money management skills:
Provide an allowance. Children learn by doing. Base the amount of the allowance on your child’s age, maturity and the cost of living in your area. As the child grows, increase the allowance and let him or her take over buying some necessities.
Let them do some of the research. Some parents have their children find out how much money they need for something they want — and even submit detailed “budget” requests in writing. These can then become the basis for negotiating allowances. This practice works especially well when they go off to college and the amounts under discussion go from tens and hundreds, to thousands of dollars.
Don’t penalize a child for working. If you reduce allowances when your child gets a job, it punishes them for taking the initiative.
Encourage (or require) regular saving. Open a savings account in your children’s names. Then encourage them to put a percentage of everything they earn or receive as a gift into savings. Use this to teach them how to put money aside for big expenses.
Teach by example. It’s still the best teacher. Believe it or not, your children do pay attention to what you do, including how you manage your money. So, be sure to practice what you preach.