5 Financial Lessons You Should Teach Your Kids

Life would be so much easier if six-figure salaries were hereditary. According to a new study in the Journal of Political Economy, your son’s future success isn’t solely based on what you bring home each month, but also the life lessons you pass on, like sage advice, smarts, or work ethic. Teach your children well with help from Stuart Ritter, dad and senior financial planner for T. Rowe Price.

$"5 Financial Lessons You Should Teach Your Kids" \\ Father and son putting money in a piggy bank$

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Never say no

"No" is not a productive answer for your "Can I have that?" pleader. If your kid wants something, have him or her set a goal like buying a new bike by July, says Ritter. That way, when a video game becomes a must-have one week later, you can point out that by buying Max Payne 3, they'll have less money and have to wait longer to ride that shiny new Trek. "It helps kids understand the value of priorities and what's important," says Ritter.

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Let them learn trade-offs the hard way

$"5 Financial Lessons You Should Teach Your Kids" \\ Kids putting money in a jar$

Some kids, however, are impulsive little devils and will buy the video game anyway. In a famous 1960s study, when 4-year-old children were given an option to either eat one treat or wait until researchers came back and get double the treats, most of the kids couldn't delay their gratification and had marshmallows stuffed in their mouths within 30 seconds of the researcher leaving the room. Priorities can be hard to teach, Ritter says, but when your child still doesn't have a bike in August, the sting of a lesson well learned will help him make a better decision next time.

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Share your money worries

$"5 Financial Lessons You Should Teach Your Kids" \\ Father and son looking at the computer$

"This doesn't mean pulling out your tax return," says Ritter. "But you can talk about how you as a family allocate the money you earn." For example, explain that you're driving 10 hours instead of flying for vacation to help save money for a bigger house. Or that keeping an older car puts more money in the bank for college education or retirement. It conveys your family values and promotes goal-setting and sacrifice -- a lesson the majority of kids these days could use. (On the flip side, your son or daughter is also imparting some wisdom on you. Discover 21 Big Lessons You Can Learn from Your Kids.)

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Keep lessons light

$"5 Financial Lessons You Should Teach Your Kids" \\ Father and son looking at the computer$

"Most people think a money conversation should be a three-hour, formal sit-down the day before your child leaves for college," says Ritter. "But we don't approach other important life lessons this way. Kids learn through teachable moments. They don't need to understand price-to-earning ratios any more than a 16-year-old driver needs to understand a transmission's gear ratios," says Ritter. Your goal is to pass on strategic lessons. Explain what you're doing as you pay the bills, use a credit card, or take money out of the ATM. Talk to them about why placing money in different places (like stocks and bonds, not offshore accounts) is a good thing.

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Practice what you preach

$"5 Financial Lessons You Should Teach Your Kids" \\ Father and son looking on the computer$

Kids model behavior. If you rack up massive credit card debt, there's a good chance they will, too. If you're impulsive and reckless with spending, they'll find ways to blow their money the same way. If you've made mistakes in the past, own up to them. "It's easy as saying, 'If I'd thought about this, I would've done things differently,'" says Ritter. Talk about changes you plan to make, make them, and your children will learn how to bounce back during a tight spot -- an especially poignant lesson in this economy.

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2Comments

Best

Dec 31, 2012 4:33AM

I know that having kids can be finically hard to raise children . I see my mom word hard with her job and making money but the one thing that keep her going is our God Jehovah. Matthew 6:33 says "Keep on seeking first the kingdom and is righteousness, and all these other thing will be added to you. so you need to make sure your raising your kid up right by God and life will have some problems but if you pray to Jehovah then your righteous will be like the waves of the sea

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isaac de la rosa

Dec 18, 2012 4:21PM

I practice the "never say no" method. I always tell my children they have to do a better job of convincing me why it is important - no, whining or because responses. I also teach them to try to find their own solutions. A while back I bought a board game that teaches children about how money works and i also bought monopoly city for fun. I have been looking for as many possible ways to teach my children to think about money, about planning for future and success. I recently bought two copies of this interesting book: for Children "how to become' rich, successful & do well in school.

They love to read so the book worked out pretty well.

It's hard, but I believe as a parent we have to take more active roles in what we want our children to learn.