The Next Generation of Entrepreneurs -- or 'Generation Debt'? What should you be teaching your kids about personal finance?
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It's clearly the job of parents to teach their children many things -- manners, values, dressing themselves. But how about financial literacy and budgeting?
According to a 2016 National Financial Capability Study (from FINRA Investor Education Foundation), nearly two-thirds of Americans surveyed did not have basic financial literacy. The numbers were even more staggering among teenagers. An ING Direct study found that 87 percent of teens surveyed knew little about personal finance. At the same time, the study revealed that 35 percent of teens wanted to learn how to save money, and 28 percent, about budgeting.
Those numbers seem pretty low to me. And, honestly, they seem a little pathetic. Why aren't more kids being taught about money, budgeting, taxes and balancing a checkbook early on?
My own history
A couple of weeks ago, I did an interview, and to my surprise the questions weren't about business, marketing, cryptocurrency or any other topic I normally speak about. In fact, the questions revolved around the money lessons I myself had learned as a child -- mistakes I made in my younger years and what money lessons I taught my kids, growing up. These questions made me pause and think: Why aren't we putting more emphasis on financial learning in high school and college?
To my delight, I learned that some are already stepping up to the challenge.
For example, the University of Wisconsin-Madison offers two 16-week financial life skills courses -- one for freshmen and sophomores and the other for juniors and seniors. The University of North Texas developed a Student Money Management Center that has online resources, workshops, personal consultations and seminars. Community colleges in California, meanwhile, are helping create a culture of financially literate adults by incorporating education programs at all 114 colleges in the state's system.
So, what can we do to make sure we're raising the next generation of entrepreneurs instead of "generation debt?" Here are four lessons:
Setting the tone
A University of Cambridge study found that children begin to form their money habits at the age of 7. As adults, we are the example our kids follow, so we need to set the tone on how we spend money. Whipping out credit cards every time we want to buy something sends a bad message because children will believe this "magical" card is the answer to all their problems.
Barely a decade ago, we went through a major financial crisis, and one of the causes of that recession was that we borrowed more than what we could repay. Racking up debt, especially on frivolous purchases, will send kids down the same path.
As a child, I learned the important money lesson of the value of saving my money and budgeting. My biggest mistake, though, was giving in to fads and spending my money on things like clothes and records (yes, I'm probably dating myself now), just because I wanted them, not because I needed them.
The value of money
Not having a lot of money growing up meant that I learned early on that I probably wouldn't have the same things other kids had. Once I realized I was really good at selling stuff, I didn't care about having the same things others had. My very first job as a teenager was delivering flyers. I also sold subscriptions and even baseball tickets.
I learned early on that if I wanted something, I'd have to work for it.
Nowadays, kids see their parents scan a card or press a button and then wheel out a cart full of groceries or a wallet stuffed with cash or whatever other goods they purchase. However, those kids fail to connect where that money came from. About two-thirds of parents remain reluctant to talk to their kids about money, according to a T. Rowe Price survey.
That is a big mistake. The same survey also revealed that parents who do talk to their kids about money at least once a week are more likely to have kids who are smarter about the subject and make better decisions later on.
Why money should be earned, not given
There are two schools of thought here. One believes in giving children an allowance for doing odd jobs around the house like mowing the lawn, washing the car or even cleaning their rooms. Many believe that having kids work for their money is the best way to teach them about earning some money and learning the value of hard work.
They're not wrong.
The other school believes in not giving kids an allowance for things they should be doing around the house anyway. Personally, I didn't give my kids an allowance. I wasn't going to pay them to do things they should be doing anyway, like cleaning their rooms. Instead, we had a "points system" -- where they earned points for work they did around the house. If they wanted something really badly, that was the only way to get it.
Still others believe in giving a commission instead of an allowance for chores. As happens in sales, under this system, the more chores you complete, the more commission you get.
I can't say that any of these methods is totally right or wrong, but I know this: As a parent, you always want your kids to have more than you did growing up. It's part of the process. However, I also believe kids should go through the same struggles you went through as a kid. Denying them the struggle makes things too easy for them.
Save your pennies.
One of the smartest money decisions I made as a kid was saving for a rainy day. I anticipated wanting to buy something that I really wanted, like my first rifle. I remember setting money aside and buying it on lay-away. Same goes for my first bike (a banana-seat model).
Kids are constantly bombarded with ads about toys and games, so naturally they want to get those items the moment they see them. Parents need to be the first line of defense for when Junior asks for that $150 pair of shoes. Work together on a plan for how he or she will earn enough money to buy those shoes.
Teaching kids to save a little bit of money, no matter how small an amount, will come in handy, not just to buy that coveted pair of sneakers, but also later on in life. A 2016 GOBankingRates survey found that one in three Americans surveyed hadn't saved enough money for retirement.
In the old days, I was taught to balance a checkbook, keep a balanced account and even display proper phone etiquette. In that context, not teaching the up-and-coming generation of entrepreneurs the basics of personal finance is very short-sighted. Schools think parents should be teaching this subject, and parents think schools should be teaching it.
Meanwhile, neither is teaching kids a thing about something that will serve them their entire lives. So, as part of your parenting role, make it your business to teach them while they're young; otherwise, you'll find it more difficult to "teach an old dog new tricks."
And the kids? Failing to learn these lessons when they're young will guarantee that the School of Hard Knocks will be the one teaching the lesson instead.