Now more than ever parents need to teach kids about money: how it works and how to manage it before they’re adults.
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The world has changed since we were kids, and that is especially true when it comes to money management and financial literacy. That’s why now more than ever today’s kids need to understand money.
Decades ago recent college grads had little more to think about than finding a job and getting a new apartment. But today there are a number of financial choices 20-somethings need to make that can set them up for success or failure.
Ron Lieber in his excellent book, “The Opposite of Spoiled“, highlights a few of the reasons kids today, even young kids, need lessons in money management:
College Debt: Juniors and seniors in high school have to make one of the biggest financial decisions of their lives – how much debt they can afford after graduation. According to College Data, a student attending an in-state public college for the 2014–2015 academic year will spend just under $100,000 in four years. That number jumps to $25,000 for a private college . 70% of these fees will be paid for by students themselves, according to US News.
Advice: Teaching kids basic budgeting skills can help teenagers get a sense of the trade-offs necessary when faced with debt payments. Having an allowance and finding ways for older kids to work for money teaches early lessons in money management.
Health Insurance: Once they graduate from college and get their first job, 20-somethings need to decide how much health insurance coverage they need and can afford. Unlike a few decades ago when employers largely covered the cost of insurance, today at least part of the financial burden is on the employee. Choosing the right coverage at the right time in life can save thousands.
Advice: While it’s difficult for any adult to know what the right coverage should be, if kids have been taught to weigh benefits vs. costs, this tricky decision could be easier. Also, a parent’s transition to a new job is an opportunity to show kids the heath insurance choices available and why your family has chosen a particular level of coverage. Better yet, get kids involved in the decision-making process to help the family decide what makes the most sense (obviously parents have the final say).
Retirement: Also an area of our financial lives that’s shifted over to the employee: No longer can employees count on pensions – the ball is in our court. Since 401Ks and similar products are now standard for retirement savings, all adults are better off with a basic understanding of investments.
Advice: Talking to kids about investments, and even having them invest in one share of stock, can offer a glimpse into how the stock market works. Books such as The Teenage Investor by Timothy Olsen, can teach kids the basics of investing.
Home Buying and Mortgages: If the 2008 financial crisis taught us anything it’s to beware of mortgage products that sound too good to be true.
Advice: While it may be impossible for young kids to really grasp the concept of a mortgage, buying a new home can be a great learning opportunity. Parents can get kids involved in the process. Talking to kids about what is affordable and the trade-offs the family would have to make will be lasting lessons. This is also a great opportunity to teach kids how to evaluate sales pitches and the lesson “what sounds too good to be true usually is”.
All four of these areas of personal finance are difficult for even the most well-educated adult. But recognizing the changed financial landscape our kids will face can help us think of ways we can incorporate helpful lessons into their childhood and adolescence.
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