I’ve often lamented the fact that practical personal finance skills are something very rarely taught at any level of education. In light of this I am passing on the following list created by Richard Barrington from MoneyRates.com. He hits on the most basic, but no less important, money lessons parents should endeavor to impart to their children. This is especially pertinent for those parents sending their kids off to live on college campuses, where for some it will be their first taste of “living on their own.” A college freshman armed with this little bit of knowledge really would be one step ahead.
By Richard Barrington
Given that men and women alike have to manage their personal finances, it is equally important to teach boys and girls some fundamental money skills. Here are six financial lessons you should teach each of your kids before they leave the nest:
1. Basic budgeting. From the age when children are old enough to spend money, you should start teaching them how to plan expenditures so they don't exceed their allowances or other sources of income. Ramp up these lessons when your kids get their first jobs, so you can teach them how to make their paychecks last.
2. Handling a checking account. Don't open a checking account for your kids without teaching them how to record transactions, update the balance and periodically reconcile their records with the bank's. It also helps to go through their first few statements with them, to help them understand the format and terminology, and also to make sure they are keeping up with their records.
3. Responsible use of credit. You should not even consider getting your children their own credit cards until you have had a chance to explain how credit works. Point out just how expensive credit card interest is, and stress that borrowing should be a temporary measure that should never be undertaken without a clear plan for paying the money back.
4. Investment fundamentals. Investing is a subject that one continues to learn about throughout life, but you can get kids started by explaining the trade-off between risk and reward, and by discussing major investment stories with them so they can start to gain some vicarious experience before they have any money at risk.
5. Salary negotiation. The emphasis should be on knowing the marketplace and making a case for themselves that demonstrates how they add value to their employers.
6. Saving for retirement. Time is a valuable ally when it comes to building retirement savings, so this is a natural subject for early education. After all, if someone does not introduce the topic, a young person is unlikely to give any thought to retirement saving.