Teaching Your Children Financial Literacy
“Helicopter parents” dominate many children’s lives. They lurk in the shadows, concealed in their mini-vans, looking to monitor and butt into virtually any situation in life their child encounters. Besides being humiliating and demeaning to the child, there are worse side effects to this behaviour. Children will never learn how to properly manage their finances if a parent is always ready to interfere and save the day.
Not allowing kids to experiment and be self-reliant because of extreme parental interference can lead to many bad outcomes, such as passivity, dependency and closed mindedness.
Over-parenting can have negative effects on a child’s personality, but the impact on future financial management is particularly devastating. While parents need to back off and stop living vicariously through their children, there are positive steps to take to prevent this potential disaster. Here are a few financial strategies to implement before your child becomes your own personal ward of the state.
Make Them Work
Part time jobs and chores are great character builders. They provide numerous benefits, both monetarily and in terms of character building. Constantly shuttling a child to sporting events and recitals misses the opportunity to teach a child that recreation and leisure activities, such as sports and hobbies, are only one facet
of a balanced life. Doing house chores or odd jobs may not be glamorous, but work encourages responsibility and builds confidence. The child will learn to develop a work ethic and meet a wide variety of people they would not normally have any direct contact with. More importantly they will understand that their “wants” in life are not the centre of the universe. Kids need to do things for themselves in order to get ahead in life; there is no shortcut around this.
Set Up A Bank Account
This will not only teach your child the value of saving, but will provide many other benefits. Most importantly, it will make them less dependent. Having their own funds — and having to manage those funds — will enable the lessons of wants versus needs and budgeting to come to life in real time. Individual decisions will have to be made and your child will soon learn they can’t have everything.
Establish An Investment Account
The most important lesson regarding investing is the value of compound interest. Those who have the most years ahead of them benefit disproportionately from this cardinal rule. This account will also teach your child the invaluable lesson of learning from mistakes. This is considered to be heresy to a helicopter parent. Let your child choose some investments with small amounts of money even though they may experience losses (which can be an invaluable experience). It may prevent them from making the same mistakes when they are much older and have a great deal more to lose.
Sign Up For A Credit Card
This act will pay numerous future dividends and can be started when your child is in high school. Not only can it teach the danger of borrowing more than you can pay back, it can prevent future financial mishaps. Learning the dangers of debt mismanagement is much more valuable when borrowing hundreds of dollars than it is when borrowing tens of thousands of dollars in student loans. Allowing your child to make some mistakes will provide the most benefit. This will cement the idea of the dangers of credit card misuse. All of these lessons will go for naught if you step in and pay your child’s bill. This will only reinforce the dependency that needs to be eliminated.
Bill Longstreet is a partner with Shanghai based Caterer Goodman Partners, a primarily fee based financial advisory firm. For more tips on how to handle your savings, check out their blog, www.chinaexpatmoney.com