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It Pays to Pass Along Financial Responsibility

September 17, 2015

In a world fueled by money, it is inevitable for parents to feel concerned about the success of their children’s impending lives. Upon having children, parents almost instinctively begin anticipating the future – setting aside money for college tuition, opening new bank accounts, and purchasing savings bonds. While all of those are excellent preparatory steps, teaching them financial responsibility is one of the best things you can do for their future. As your children begin to fly the coop, the lessons you will have taught them will ring true and remain timeless. By sharing your fiscal knowledge, you will set them up for a lifetime of financial success and put your own mind at ease.

Financial Education is Fading

It is particularly important that the next generation receives financial education because the majority of schools do not teach it. In the past, lessons in balancing a checkbook and other similar instructions were offered in the classroom, and economics classes tended to be mandatory. Due to the pressure schools are under to perform, along with a shifted academic direction and heavy reliance on various technologies, the resources and expertise to teach such fundamentals are limited. With that being said, do not depend on your son or daughter’s school to impart financial wisdom. Rather, take the initiative and incorporate some of those lessons at home.

Begin with the Basics

You do not necessarily have to sit your kids down for note-taking lectures in order to pass along financial responsibility. Instead of going the formal or structured route, you could let your kids watch you and help you deal with the family finances. For instance, if you have young children, taking them with you to the grocery store and having them add up the tab on a calculator as you place items in the cart creates a simple lesson in economics. Additionally, kids tend to learn quicker and retain more information through hands-on experience.

Simple everyday practices like this can serve as powerful tools and great life lessons in how the world works. If nothing else, knowledge of the cost of the food your kids eat daily will instill a respect for money that can last a lifetime and give them a reference for the price of goods.

Debt Do’s and Don’ts

It is imperative that the next generation is aware of the dangers of debt. Because severe college loan debt and lifelong repayment plans are all too common in this day and age, parents should be open and honest about their own background with debt and share what they have learned with their kids.

To help them fully understand the concept, review your next credit card bill with your older kids. Explain the various parts of the statement, including the list of charges, the interest rate and any finance charges. A real-world example will open their eyes to the dangers of excessive debt and the irresponsible use of credit cards.

Lead by Example

There is that old saying favored by parents that goes, “Do as I say, not as I do.” However, in this case leading a strong financial life will be even more effective than talking to your kids and educating them about finances. Your children have a closer eye on you than you may think, and they consider you their role models. Carefully monitor your credit score, pay down your debt, and choose wise investments so that your kids can begin to appreciate and practice the same values and habits.

Keep a Fixed Foresight

If you are already retired, discuss with your children (or grandchildren) the path you took to get where you are now. Make sure they know that exiting the workforce early to enjoy the rest of your life does not come without hard work and dedication first. If you are still working, take the time to go over retirement plans like 401(k)s and IRAs with your children, emphasizing the fact that saving a little bit of money each week can build a strong foundation for the road ahead. These real-world lessons are among the most effective ways to teach the next generation about the value of frugality and the wisdom of long-term investing.

Sharing the Wealth

Last but not least, you will want to teach your kids about the importance of giving back to the community. As you discuss the process, present your kids with the opportunity to add some of their own money to the everyday contributions that you make, such as tithing at church, or donating to organizations. Share with your children your favorite charity, and encourage your son or daughter to start a fundraiser at school. It is never too early to develop the charitable impulse most young people already have.

Your children deserve the knowledge to succeed with their finances. Introducing a level of understanding at a young age and nurturing that as your children age is the best way to instill financial responsibility. Bestowing your children with the ability to provide for themselves and others is a gift that will keep giving as your children achieve financial success and enjoy the benefits of that success.