Best-selling author Eric Tyson says now is the perfect time to teach your kids some valuable financial lessions, especially in today’s climate.
With job layoffs, frozen pay raises and other economic impacts, Tyson said there’s no reason for parents to feel guilty because they can’t buy that video game their kid is screaming about or decide between karate and basketball.
Kids are surprisingly aware of what’s going on in the world,” says Tyson, author of Personal Finance For Dummies®, 6th Edition
“And if they don’t know that times are a little bit tough and that Mom and Dad are having to watch their spending, it’s time to tell them. Sheltering kids from financial realities does them no favors.”
Tyson says a good grasp of personal finance is one of the most valuable life skills a person can have. And while previous generations may have been raised with the constant admonishment that “money doesn’t grow on trees,” too many of today’s parents neglect that lesson. It’s time to change that—and the severe recession provides a great incentive for doing so.
“In many ways, a long-term financial slowdown can be a blessing in disguise,” admits Tyson. “It forces more families to make a budget and stick to it. It forces them to be conscious about how they handle money. That’s good for kids. It shows them how the world is supposed to work.”
Among the key points in the new book:
1. Tell them the truth. Kids are perceptive. If parents act anxious and on edge, kids will notice. Tell them what’s going on in the family’s financial world.
2. Explain to them how much things cost. Some parents are surprised to find out that their kids don’t have a very good grasp on what things cost.
3. Realize that kids learn what they live. It may sound like common sense, but parents are their kids’ most influential teachers. When parents ring up a barge-load of credit card debt, take out exorbitant mortgages or car loans, and fail to save anything, that’s what kids come to see as normal.
4. Deprogram them. Kids are constantly bombarded with information about what things cost, whether it’s the fancy sports car they like or the wardrobe of their favorite athlete or actor, not to mention the 40,000 commercials that the American Academy of Pediatrics estimates the average American child sees each year. What they aren’t bombarded with is knowledge concerning how to manage money effectively.
5. An allowance is a great teaching tool. A well-implemented allowance program can mimic many money matters that adults face every day throughout their lives. From recognizing the need to earn the green stuff to learning how to responsibly and intelligently spend, save, and invest their allowances, children can gain a solid financial footing from a young age.
6. Start them saving and investing early. It’s never too early to start saving, and the sooner parents instill the importance of saving money into their kids, the better.
7. Reduce their exposure to ads. The primary path to reduced exposure to ads is to cut down on TV time. But when an ad does sneak under the radar and set the kids to begging, address it. Explain to kids that there’s never a good time for frivolous impulse spending—but it’s especially harmful when money is tight.
8. Find entertaining ways to teach good money habits. For younger kids, Tyson recommends age-appropriate books or board games like Monopoly or Life.
9. Teach them how to shop wisely. Family shopping trips, whether for groceries or something else, are likely to be a kid’s kids’ first encounter with spending. They’ll see parents make decisions based on what the family needs and observe how they pay.
10. Introduce the right and wrong ways to use credit and debit cards. Those plastic cards in your wallet offer a convenient way to conduct purchases in stores, by phone, and over the Internet. Unfortunately, credit cards offer temptation for overspending and carrying debt from month to month.
11. Encourage older kids to get a job. An allowance doesn’t have to be the only way for your kids to earn money. Your child’s initial exposure to the work-for-pay world can start with something as simple as a lemonade stand.
Besides the learning opportunities it presents, there’s another positive to the recession, says Tyson. It forces families to be more thoughtful about how they spend their time—and this often leads to the stunning realization that money really doesn’t buy happiness.
“Often, all those unnecessary things we buy for ourselves and our kids are simply distractions from the people we love,” he says. “They send the message that it’s necessary to spend a lot of money in order to have a good time. It’s not, of course. The best things in life—friends, family, quiet evenings at home just being together—really are free. Sometimes it’s good to be reminded of that.”
About the author: Eric Tyson, MBA, is one of the nation’s best-selling personal finance book authors and has penned five national bestsellers (he is also the only author to have four of his books simultaneously on BusinessWeek’s business book bestseller list). His Personal Finance For Dummies (Wiley) won the Benjamin Franklin Award for the Best Business Book of the Year