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We ran across a fascinating study the other day on personal finance. It revealed 41% of adults give themselves a grade of 'C' or lower when it comes to their knowledge of personal finance. Just imagine! More than 40% of us don't feel we really understand personal finance and yet it’s one of the most important aspects of our life. High school teaches us about things like algebra, history and literature and this is all good. But what's missing in the overwhelming majority of American high schools is classes in personal finance. Just ask yourself what's going to be more important to you in a few years – having read Shakespeare’s sonnets or having a really good understanding of personal finance? As much as we love the works of Shakespeare we would definitely vote for the personal finance option.
It's up to you
What this means is that if you want your children to understand personal finance it will be up to you to teach them. If not, you'll basically be dooming them to that 41% mentioned above. What you don't want to do is sit your kids down and do a data dump – explaining everything about personal finance in 90 minutes. What's better is to teach them in small increments over the years.
When they're five years old or younger
Children this age can't be taught the dangers of debt. However, you can help them identify coins and their values and talk to them about the difference between things that are free, such as playing with a friend, versus those that cost money such as an ice cream cone. This might also be a good time to introduce the idea of why you work and that there are times when they will have to wait for something they want. For example, if your five-year-old wants a Star Wars' Lego set for $54 you might say, “That’s more than we can afford right now so you’ll have to wait a few months for it”.
This would also be a good time to start talking about how much college costs and how much the family can afford to contribute towards her or his education. If the answer is the family can’t contribute very much or maybe nothing at all your child needs to know this early on so she or he can begin learning about Pell grants, scholarships, grants-in-aid and federal student loans.
Be sure to encourage questions about personal finance
When your child's financial situation changes there will likely be questions. Be sure to encourage he or him to ask you about any that arise. If you get a question you don't feel 100% qualified to answer, then the two of you might go through the process together to find the answer.
Finally, you don't want to be heavy-handed about this but you should encourage your teenager to read some good books on personal finance. Two of the best of these are " Rich Dad, Poor Dad” by Robert Kiyosaki and “The Total Money Makeover" by Dave Ramsey. If you can’t charm your kid into reading either of these books you might read the Ramsey book yourself and then explain some of its teachings to your child.