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The Gift of Financial Literacy

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The following is a contribution from my good friend, Shannon at The Heavy Purse. 

When I was thirteen, my father started giving me money lessons. He didn’t focus on how it worked, but instead helped me develop a good relationship with money. He taught me how our emotions drive our spending, so if I wasn’t careful my emotions, be it anger, fear, frustration or even happiness could leave me with an empty pocketbook and no money for the things that truly mattered to me.

His lessons changed how I viewed money and ultimately led me to became a Certified Financial Planner, so that I could help others build a positive relationship with their money. Financial literacy is my passion and I love what I do, but there are some troubling trends that concern me. We live in amazing times, yet our financial literacy continues to erode year-after-year.

  • 61% of adults surveyed in the National Financial Capability Study received a failing grade in 2012 versus 58% in 2009 according to CNBC.

I look at my daughters and their friends who want to conquer the world, but I know without a strong grasp of finances, the world might conquer them instead. There is great debate around who is responsible for teaching children about money.

Some say parents; some say schools. I say both. Parents are ultimately the best teacher, but so many are unaware they even need to talk to their kids about money or are too embarrassed by their own lack of financial knowledge. Even if kids start learning about personal finance in school, parents are not off the hook. Our kids are always observing us, including how we handle money. Some parents are unintentionally passing along poor money habits and beliefs to their kids.

This leads some to wonder who we should educate first: parents or kids? It’s a little bit like the chicken or egg debate—does it really matter who came first? Let’s educate both. What I don’t want is another generation of kids to grow up financially illiterate while we wait for their parents to get educated.

This cycle stops now. There is no reason why parents and children cannot learn about money together. In our family, we refer to our money as family money and often give the girls a voice in how we use it. This is something I strongly encourage you to do as well and suggest you start by setting family save, spend and share goals.

Save Family Money for What Matters Most

 

You can decide together or beforehand, but just make sure the goal is something the family will be excited to achieve and is obtainable. For us, this is often our family vacation. We announce our plans over a favorite meal, and then we talk about it, often.

Success Tip: This also becomes your answer when your kids get the “I wants”. Instead of saying “no,” remind them of the family save goal. For example, “I like that doll too. It’s really nice! But remember, we’re saving our money for our big trip to Disneyland, which is so important to me. Is it important to you too? Good. That’s why I’m choosing to use our family money to go to Disneyland with you over the toy. What ride should we go on first?” Essentially you’re eliminating any feelings of deprivation by refocusing their attention on the family goal.

Spend Family Money and Make Conscious Decisions

 

Here is where you really have a chance to flex those decision-making muscles as a family. Every day we spend money and sometimes without much thought. The real trick to handling money is making conscious decisions that honor your values and goals. One way we demonstrate this is through our entertainment budget.

I give the girls various options, with one choice using the entire budget and others of varying cost. To my surprise, they often choose the more inexpensive options, so they can do more things. But best of all—they understand that afterwards the money is gone and they don’t beg me or their Dad to spend money on other things.

Success Tip: Create a grocery challenge with the goal to lower your monthly bills and use the extra money for a fun family day (unless the money is better served going towards debt repayment). Have them help you plan meals and search for coupons and sales.

Share Family Money to Enrich Lives

 

At a recent event, I asked a group of children how their family shared their money. Absolute silence. Now, I know for a fact their parents are philanthropic, but clearly their kids were unaware of how their parents were sharing their time and money. Our girls are very aware of the various organizations we support and when appropriate, they help out too.

I want my daughters to not view sharing as something they ought to do, but something they LOVE to do. At first there was a little trepidation on their part, but I’m proud to say that today they are eager to share their money (and even their toys and clothes) with others.

Success Tip: If your kids are new to sharing, I would start with something tangible, rather than sending a check. Buy groceries together and deliver them to your local food shelf. See if they can even restock the shelves with the groceries you bought.

Wait … There’s Just One More Thing You Need to Do to Assess Your Financial Literacy

 

This should all seem easy and fun. And truthfully, learning about money is fun because you are ultimately figuring out the things that matter most to you and spending your money on those things, rather than keeping up with the Joneses and buying things you care little about.

However, there is one caveat. Before you leap into the fun part—dreaming about how you will use your money—you need to know how strong your financial foundation is to ensure it can withstand your goals and dreams. To get you started, I’ve included a Wellness Checklist to help put your financial house in order.

As parents, one of the most loving acts we can give our children is the gift of financial literacy. The ability to make smart money decisions will help them create the life they want and support their long-term financial well-being. They will now have the tools to truly conquer the world.

 

Shannon’s Bio: Shannon Ryan, CFP® is a Mom on a mission to help busy parents teach their children simple, value-based principles that guide their money decisions and support their long-term financial well-being.

 

Editor’s note: I love Shannon’s thoughts here, which is exactly why I asked her to guest post. I could not agree more that giving our children the gift of financial literacy is one of the most loving things we can do. If you have the time, please take a look at the Wellness Checklist Shannon included, it’s awesome!

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John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.

Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.

Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.