Teach your children to avoid the mistakes you made with money

Special to the Outlook

Numerous surveys show that many Americans live paycheck to paycheck, have little saved for retirement, and lack fundamental financial knowledge. They often face threats of debt and poor credit scores. This further increases the chances of them living below-standard life.

Part of the problem, experts say, is that financial literacy has not been emphasized in American education, which is why individuals usually appear to be unaware of what 401k is or what a self-directed IRA for precious metals is. Only 21 states require high school students to take a personal finance-related class. If parents want their children to learn the value of money and how to avoid financial problems as adults, the education has to start at home, says Steve Kruman (www.brycewealth.com), a financial planner and investment advisor at Bryce Wealth Management.

“When they understand their parents’ financial situation and gain an understanding of financial literacy,” Kruman said, “they are more likely to appreciate the gifts they are given, or aren’t to be given, and why.”

Summer is the ideal time to teach financial literacy to children because they can get real hands-on experience. Teaching a child to be financially literate will help them understand that they have to take personal responsibility to be financially secure when mom and dad aren’t there to put the food on the table for them.”

Kruman offers the following at-home teaching methods to help children learn financial literacy:

Steve Kruman suggested gardening as one way of teaching a child financial literacy.

Gardening and investing: The parent purchases seeds and other starting materials at a garden supply store and has the children keep track of the spending by the items on a notepad. In case the parents make use of Walmart Weekly Flyers, discounts, or any other offer to shop for the required garden supply, they may need to make their kids aware of the same, so as to teach them smart spending.

“As you work together in the garden, keep a time log of each family member working,” Kruman said. “When it’s harvest time, teach them to count up the cost of production. Help them determine the value of their produce by comparing store prices of the same product, minus the cost of production. They will learn that you can start small as an investor, but putting in more effort along the way makes things grow.”

Along with this lesson in investing, try to teach them that asking for help can be beneficial. You might not have hired a financial adviser in your youth, but don’t let your children go without one. It might be safe to assume that your children are going to end up with more wealth than you, and while financial literacy is great, it’s always prudent to consult an expert. And since kids these days are great with technology, maybe they could teach you about finding advisers online through portals like financialadvisers.co.uk and others like it.

Working and budgeting: Kruman says parents can undercut their teaching of financial literacy by handing out spending money whenever their child wants something.

“To learn good financial skills,” Kruman said, “work needs to be taught. They learn they are rewarded for effort, not just for showing up. With their finite amount of money, they can be taught what they’ll have to do as adults – divide it up for bills, spending money, and savings – and that it doesn’t grow on trees every month.”

Saving and staying out of debt: “A good lesson for your children to learn about debt would be to show them how a loan would work by you being the lender,” Kruman said. “Have them think of something that they would like to buy (such as a new bicycle or laptop) but that they don’t have enough money saved already. You could offer to help them make the purchase much earlier than continuing to save for it, but only in exchange for a loan payment that would be made by reducing their chore money. That way, they would learn how debt eats up their earning power. You have to instill in them that savings isn’t an option, but rather a necessity, so people don’t become slaves to debt.”

Apple slices and taxes: “Chances are your kids have already heard you bemoaning taxes,” Kruman said. “Get one of those vertical apple slicers, and cut an apple up in sections to represent the approximate portion of your personal tax hit – federal, state, city/township, Social Security, etc. Put those slices next to the remaining part of the apple, and that difference will stick with them.”

Toys and depreciation: “Teach them to look at their toys and clothes,” Kruman said. “Toys wear out. Children’s toys and adults’ expensive items, such as cars, need to be purchased to replace old ones, and teaching an understanding of that principle of depreciation is essential to teaching your kids why people need savings. Help them understand depreciation by asking them to compare prices of toys being sold at a yard sale versus a similar toy being sold at a new price online or in a store.

“Children have a lot of years to grow up. You can give them years of age-appropriate financial lessons in their own home that will last a lifetime. Start now if you haven’t already.”

Steve Kruman (www.brycewealth.com) is a financial planner, investment advisor and insurance agent at Bryce Wealth Management. He’s also a licensed attorney in Pennsylvania and New Jersey, focusing on estate planning. Kruman is a Life & Qualifying Member of the Million Dollar Round Table, the only industry organization for people who are ethical top performers.