3 New Year’s Financial Education Resolutions for Parents
Posted by Nancy Phillips on Sun, Jan 01, 2012
Including financial goals in New Year's resolutions is a fairly common thing to do. This year, with all the news about the economy and the importance of teaching kids about money, more and more parents are looking for easy and effective ways to help their kids learn about finances as well.
Here are three ways to get your children on the right track. A key concept to keep in mind is that managing money wisely is a skill, not an academic concept that can be learned simply through a lecture. Kids need consistent hands-on experience so they can learn from their successes and mistakes.
1. Parents, you are your child’s most influential financial teacher - commit to playing an active role. Look for everyday learning opportunities such a s at the store or while unpacking groceries so you can talk about real-life things such as what things cost. If your child asks you a question, this is a perfect teaching moment because you know they are interested. Try to take the time to give a good explanation and not just shut the conversation off with a short answer. Helping your children find ways to earn money for their “wants” teaches them to be resourceful and become a good problem solver (not to mention creative!) Use cash as much as possible so they can see the money exchanged in a tangible way. One of the most important lessons for children of all ages is learning the difference between needs and wants. Learning to prioritize and make good choices is one of the fundamental factors of good financial decision making. Give your children the opportunity to distinguish between what is truly essential and what is a desire. Use a “wish list” to allow them to print out what they want and learn to prioritize.
Repetition is fundamental to learning and learning is an active process. Financial topics are something that need to be discussed and practiced regularly. Repetition and “relearning” trigger new ideas and understandings because they build on themselves. Your child will begin to see things differently as their foundational knowledge level builds.
2. Demonstrate good habits as much as possible. Plan your purchases and talk about how you make your buying decisions so your child can see the thought processes behind decision. Save and talk about the importance of saving for the things you need and want in the future. Don’t make impulse purchases, and don’t waste what you already own. Take care of your possessions and show how you value things as well as the time it took you to earn the money to purchase the item. Because children learn by modeling your actions, these lessons will have a significant effect on their future attitudes and actions. Don’t talk negatively about money, try to be objective and factual as you can when you discuss financial matters. You want your child to grow up feeling that they can learn how to effectively manage their money. If they grow up with a negative attitude towards money, they will have a hard time changing their thoughts and feelings towards it in the future.
3.Teach the different uses for money with the “GISS” method of money management – a powerful and simple wealth building practice.
When your child earns or receives money, help them divide it up into these four categories.
Give (10%)
Children are natural givers and giving is a very powerful concept for them because as they begin to give, they realize they have the ability to help and make a difference in the world. This increases their self esteem and feeling of community.
Invest (15%)
Many people save but end up spending their savings on material items such as cars, boats etc. and not on assets that will create cash flow such as rental properties, businesses etc. Investing is an abstract concept for really young children but can be learned about gradually. Initially this segment can be explained as the money they grow and grow and use when they are older. Everyone needs to commit to learning about investing so they have money to live on when they retire.
Save (25%)
It is critical that children learn to set and achieve goals, including financial goals. It is much easier to start earlier in life when there is no risk or fear involved. As a child works toward their goal, they learn the steps necessary to achieving their goal. This allows them to experience and understand their personal capability and helps increase their confidence for setting even bigger goals. Saving helps develop self-control, a key factor in future financial success. It also helps a child learn to prioritize and think through their purchase decisions beforehand, reducing the likelihood of buying mistakes.
Spend (50%)
Once a child uses their own money for purchases they begin to consider the cost and value of things. It’s much better for a young child to have a chance to handle money and make mistakes with a few dollars than it is to send them off to college and expect them to learn on their own. Mistakes are not bad things; they are lessons that need to be learned. Buyer’s remorse over a cheap broken toy teaches a strong lesson about quality even to a pre-schooler.
The power of the “GISS” method: The weekly experience of dividing money into “Give, Invest, Save and Spend” categories is powerful for many reasons. The process is repetitive which is important for learning and developing new habits. It is full of memory making movement such as counting and sorting coins. The method also incorporates thinking and decision making skills when the child sets their short and long-term goals. These experiences all work together to make a memorable learning experience and create the foundation for good financial habits.
You Can Do It!!
You have an incredible opportunity to help your young children get off to a good financial start by giving them the time to learn, practice, and discover the many facets of financial decisions. The most important thing you can do is start!
The lessons don't need to be complex. You can begin simply and effectively just by raising their awareness of everyday financial decisions and giving them an opportunity to partake in some decision making as well!!
All the best for a very healthy, happy and prosperous 2012!
Nancy
Click here if you would like to learn more about the Build a Bank book and building the GISS bank with your children.