Who's educating American kids about money? Certainly not their schools. Probably not their parents either.
Unlike gym, personal finance is not a required subject. And in many homes, talking about money is on par with talking about sex -- "the last two taboos," as personal-finance expert Susan Hirshman puts it.
"Money doesn't grow on trees, but (kids) have no idea of how much money there is," says Hirshman, the author of "Does This Make My Assets Look Fat?"
How could they know? Their parents bank and pay bills online; they cover most daily expenses with plastic. There's not much talk of mortgage versus income or retirement accounts or how to shop for the best deals.
How many mistakes might our children avoid if they took PF along with PE? Or if we, their parents, took the time to model and explain sound financial practices?
Parents: If your teens don't know these things, you'd better start talking.
1. Know where the money goes
Hirshman, a certified public accountant and certified financial planner, recently worked with a 20-something couple who had $100,000 in student loan debt. These ducklings had Ivy League educations yet couldn't figure out why the books wouldn't balance. They knew exactly why after Hirshman showed them how to track their spending."All of a sudden they looked at each other and said, 'Oh, we can't go (on vacation); we really shouldn't be going out to dinner every night,'" Hirshman says. "Until you see it on paper, it isn't real."
Whether they use pen and paper or personal-finance software, it's vital that your kids know how money gets spent -- their own money, that is. Jean Chatzky, the author of "Not Your Parents' Money Book: Making, Spending, and Saving Your Own Money," requires her two teenagers to pay for things such as movies, snacks, video games and gasoline out of their weekly allowances.
Those aren't huge allowances either. Thus the youths are "forced into the position of having to choose among things," Chatzky says. As adults, they'll have to do this all the time.
2. Save/invest early and often
Not only do your kiddies need emergency funds, they're probably going to be responsible for their own retirements.The good news? Compound interest. If they each invest $2,000 a year from age 21 to 31 and leave the money there, they'll end up with bigger nest eggs than someone who invests the same amount per year from age 31 to 65 (assuming rates of return are the same). In your 20s, with time on your side, you have a huge financial advantage.
Parents can encourage saving and investing by requiring kids to tuck away a certain percentage of their allowances and earnings from part-time jobs. Make it a condition of their being employed at all.
And yes, they should be working, even if it's just baby-sitting or lawn-mowing. "By the time they're 14 or 15, they should know what it's like to bring in a paycheck," Chatzky says.
Some parents use more than one bank. If that's you, teach your kids to pay all their bills from one location. Otherwise "it's easy to delude yourself" about total expenditures, according to Manisha Thakor, the author of "Get Financially Naked."
Thakor likes the image of online banking as an air-traffic-control tower, with bills and expenses as planes zooming at you. "If you don't have a command central to monitor that, you could get yourself in trouble," she says.
Bank tools such as low-balance alerts (although you should be aware of every transaction) and automatic minimum monthly payments (which you'll of course override each month and pay in full) prevent the additional expenses of overdraft charges and late fees.
Naturally, you'll teach your kids to automate a portion of each paycheck into savings.
Continued: Spend less than you earn, thoughtfully
