Financial advice for kids
By Arkadi Kuhlmann
Parents are often more comfortable talking with their kids about sex and drugs than basic finance. As astonishing as that sounds, it’s exactly what a brand-new survey from my company, ING DIRECT, found after examining the financial education habits of hundreds of moms and dads across the country.
Nearly a third (32 percent) said they were prepared to talk with their kids about drugs and alcohol. Roughly three in ten (28 percent) were prepared to discuss sex and dating. Yet just 26 percent reported being able to talk money and finances with their children. This doesn’t bode well for America’s financial future. Parents are a key source of information about personal finances for children. Establishing good habits early in life is critical to healthy money management in adulthood.
Parents appreciate this. Our survey found that a full 95 percent believe they’re primarily responsible for their child’s financial education. Yet less than a third -- 29 percent -- actually consider themselves “excellent” financial role models. Combine these findings and a desperate picture emerges -- many children are being deprived of the knowledge needed to develop basic financial literacy skills. This must change. Fortunately, there are a number of easy ways for parents to impart the basic tenets of good money management.
Consider allowances. Children shouldn’t receive cash each week for simply mowing the yard or walking the dog. Instead, allowances should be used to introduce your child to saving -- starting with a piggy bank and eventually graduating to a proper savings account. Along the way, explain how and why you personally save -- and teach your child about the magic of compound interest.
Financial education can also be tied into traditional school. Once a child starts learning basic arithmetic, use personal finance examples to familiarize him or her with important concepts. Of course, finance isn’t just about mathematics -- it’s also about language. A credit card agreement, for instance, can be chock-full of opaque provisions that require a close reading to fully understand. So once your son or daughter moves up to critical reading classes in school, teach them how to translate those skills to documents typical of financial life, like checking account terms, credit card agreements, and mortgage paperwork.
Help your child create a monthly budget that tracks earnings, spending, and progress toward long-term goals. Ultimately, it’s your responsibility as a parent to enforce the terms of that budget and help them stave off impulses toward short-term thinking and spending sprees.
The next step is helping your child establish a checking account and get a debit card. Don’t just pick an account for your child -- have them join you in the selection process. And explain what features they should be looking for, like no minimum balance requirement or monthly fees.
Keep your child away from a credit card for as long as possible. Plastic makes it too easy to violate a budget and accrue debt. But once it is time for them to get a card, explain what goes into a credit score, and how a low rating can make it difficult to get a car, apartment, or even a job.
Finally, introduce your child to investing, starting at an early age. Avoid the all-too-popular practice of buying them a government bond for Christmas or a birthday, and then immediately filing it away with little explanation. Start by setting them up with a custodial account. Then purchase your child a handful of stocks, ideally in a company they interact with regularly. Help them track the stock’s progress by following relevant news stories and checking the price regularly in the newspaper or online.
There’s no better time for parents to start a conversation with their children about money management. Passing along basic tips, tricks, and habits at a young age sets them up for a lifetime of financial flourishing.
Arkadi Kuhlmann is president and CEO of ING DIRECT USA.