How to Fight for Your Children’s Financial Lives

by Kevin on August 11, 2011

Personal finance education in America is a mess. Most American families live paycheck to paycheck, have little savings, and are not prepared for retirement or an emergency. This lack of understanding in the basic fundamentals of finances devastates a family. They can’t retire on time or an emergency sinks them financially. Foreclosures, bankruptcies, and divorce follow.

It’s a vicious cycle because the kids in the family see how Mom and Dad manage — if you can use that term — their money, and follow suit as they become adults. Sure, your children might have learned how to balance a checkbook in an economics class in high school, but that isn’t enough. They aren’t prepared to save money, where to save it, how to spend less money than they earn, and retirement seems like an insurmountable goal.

This can all change with you.

It doesn’t matter what example your parents set for you, good or bad. You can take control. You can get educated on personal finance. You can literally change your family tree. Get educated first, then show your kids both through example and by walking them through the concepts. Stop the trend that your parents shared with you. The decisions you make today could change every generation that follows you, if you would only share some knowledge and lead by example.

What Your Kid’s Need to Know About Money

Give your children a foundation of education on money, and the resources to grow from there. Checkbooks in economics class? Who even uses a checkbook these days? Focus on these items instead:

If you don’t have the money, you don’t buy it.

Our society is built on immediate gratification. We want it now. We deserve it now. If we don’t have the money we’ll just put it on a credit card and pay it off later.

Don’t let your kids fall into this trap. It’s a very basic concept: if you do not have the money to buy something you want, you wait, save up, and buy it when you can afford it. Just because you can finance your purchase doesn’t necessarily mean you can “afford” it.

You must know how much money comes in every month.

Step one to budgeting (or spending less than you earn, if budgeting is a dirty word in your family) is to know how much money comes in every month. You can’t adjust your spending if you don’t know how much you will have to spend. If you are working in a salaried job this is easy to calculate because your paychecks should not deviate. If you work in an hourly or commissioned job, estimate low on the income and enjoy the surprise of having more at the end of the month.

You must control how much money goes out every month.

Most people have no idea where they spend money every month. They get paid, and it disappears. This is a classic example of ignorance is bliss.

What’s sad is that you can absolutely control this factor, and control it well. The money ends up in your hands. Hold onto it. Don’t let it slip through like grains of sand.

Ignore the hype. Your friends are broke.

Television ads show us how well everyone is doing. Everyone is driving a new car. They all have the newest phone and the greatest clothes.

What the ads don’t tell you is everyone is broke and up to their ears in debt. Teach your kids to get their value from things other than “stuff”.

Save now and retire rich.

Compound interest can work for you or against you. If you take on debt, it works against you. But if your teach your children to save for retirement starting right this very second, taking a portion of everything they earn at a young age, they will never want for anything.

Cost of living is important.

Would you rather earn $100,000 in San Francisco or $70,000 in Knoxville, TN? Most people instinctively take the higher number, but that would be a huge mistake from a financial perspective. If you moved from San Francisco to Knoxville, you would only need a salary of $54,578 to enjoy a similar lifestyle. That extra $15,000 in salary can go a long way in setting you up well financially. That’s not to say living in a high cost of living area is bad. Not at all, but you must be compensated for it well. Just because a job has six figures in it doesn’t mean it’s the best choice.

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Dan Walton August 16, 2011 at 4:24 am

It’s one thing to teach kids theory and it’s another thing to teach them how to put it into practice. Kids need both. They first need some insight, a clear understanding of how money works, and then guidance to transform these abstract ideas into concrete day-to-day experience.

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Mike September 10, 2011 at 4:10 pm

I love how you said this: “Ignore the hype, your friends are broke”. it is so true! Yes, you see the shiny new toys but you dont see or feel the stress that comes with the bills! Great article.

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