The Importance of a Financial Education to Young Minds

Posted: 03 May 2011 04:56 AM PDT

It doesn’t come naturally for children, teens and young adults to make smart long-term decisions with their money. After all, when you’re young, instant gratification is the key to candy, video games, fast food and trendy clothing.

Because young people aren’t likely to get a thorough financial education in school while they’re busy learning math, science, literature and languages, it’s important that you instill in them valuable financial life lessons while they’re still living in your home. The practical knowledge you provide your children will definitely be worth your while, unless of course you want your children to be borrowing money from you well into adulthood to make up for their money blunders.

To help you in this endeavor, consider the following tips:

1.) Get your children in the habit of saving their money.
Any time a family member gives your young child money for a holiday or their birthday, require that they save a portion of the money in a junior savings account. If you give your child or teen an allowance, you should make a similar savings requirement. When they grow into a teenager, the habit will stick and they’ll learn that they don’t have to spend every penny they have just because they can. This also sets a good foundation for a saving mentality instead of spending mentality for the rest of their lives.

2.) Teach your teens how to draft a budget before they go off to college.
When your teen moves out from under your roof and into the dorms of a university, he or she will be making major financial decisions for the first time without your help. To get them on the right track early, sit down with them regularly and talk about drafting a budget right off the bat, calculating income from their job and whatever money you send them and calculating expenses for food, room and board, cell phone, gas, vehicle maintenance, car payments and books. Many parents require their children to pay a portion of their college tuition as well, so they learn the value of a higher education.

3.) Teach your children to invest in their future.
The younger your son or daughter starts planning for retirement, the less money he or she will need to stash each month into a retirement account, such as an IRA or Roth IRA, to still see amazing results when he or she draws on this account upon retirement. When your young adult starts working and is old enough to open one (typically at the age of 18), help them open an IRA and talk to them about the importance of contributing to it regularly. Teach them that the small amount that’s going out each month is a small price to pay for financial security down the road.

4.) Talk to your teens about credit cards.
Credit card companies target seniors in high school who will soon turn 18 and be able to open lines of credit for themselves. As a parent, it’s your responsibility to talk to your teen about interest rates and the dangers of keeping an ongoing balance on their credit cards. All too many teenagers go off to college, and instead of maintaining a careful budget, begin to rely on credit cards for instant gratification. Over time, these young adults can accumulate a mountain of debt that is detrimental to their financial future. Teach your teenagers the value of saving and budgeting for the things they want and then paying cash up front. Not only will they learn a solid financial principle, but they will learn there is more satisfaction with your purchases when you are patient enough to wait for them and pay for them in full.

5.) Teach your young adult how to make their money multiply.
While it’s important to talk to your young adults about basic savings accounts and liquid emergency funds, it’s also important to talk with them about vehicles for making their money multiply at a faster rate, such as Certificates of Deposit (CDs), mutual funds and stocks. After all, it will be extremely difficult for them to become financially independent as adults without employing higher-risk investments. A course in share market from a reputed institute which also provides practical experience will be wonderful value addition to youngsters.

6.) Teach your children to save up for big expenses.
Last but not least, it’s important to talk to your teens and young adults about the importance of saving up for certain expenses rather than taking out loans. Explain that due to accumulating interest, you actually end up paying significantly MORE for an item or other expense if you take out a loan, no matter how much faster it helps you pay off the expense. Teach your child that “cash is king” when it comes to making purchases, and they will be well set for financial success for the rest of their lives.

Author Bio:
Donna Reish, a freelancer who blogs about best universities, contributed this guest post. She loves to write education, career, frugal living, finance, health, parenting relating articles. She can be reached via email at: donna.reish13@gmail.com.