Only a third of states require their high school students to pass a personal finance class in order to graduate. This means that that those in the other two-thirds are fully dependent on their parents or self-teaching themselves these valuable lessons.
Fortunately, parents can provide their children with quite a bit of knowledge in financial literacy and help prepare them for one of the most important aspects of adulthood and one that generally does not receive nearly as much focus as it should. They can also fill in the gaps where any classes that their child has taken may have left.
Needs and Wants
Describing the differences between wants and needs is a lesson that can be taught to little ones. But note that it’s best to treat it more as a discussion than a lecture. You could create a pair of lists and then start discussing each item and which category it should go into. If your child disagrees with your view, hear them out as they might surprise you with their reasoning. But, if they haven’t, gently explain why something should belong in the other category.
Of course, things like housing, food, heat if you live in a cold climate, a cooling system if you live in a hot one, transportation to school and work and medical care are things that should go in the “need” pile. Conversely, candy, games, toys and televisions should go into the “want” section. However, there are some things that can go in both such as clothes and books. For these, some are essential, and some are not.
Don’t Be Fooled by Sale Prices
It can be so easy to see something on sale for, say, 50 percent off and get all excited and then buy it. However, even with a substantial discount, it might not make financial sense to purchase it. The secret, which is something that many adults don’t do, is to ignore that it’s on sale and disregard how much the price has been slashed. Solely consider the final price and whether that would make it worth it to purchase or not.
Some sellers will put things on sale quite often, which does make sense from their perspective as more buyers are apt to get something that is on sale for a certain price than if its regular price is listed as exactly the same figure. It’s important to teach children to look past this selling strategy and only consider the final price.
A similar point should be made to children regarding seeing something being offered for free. Nothing is truly free as there is always going to be something in it for the seller. If your child is old enough to be online, really stress this point. Some online products being offered for free may be there so that your child’s personal information can be secured and used.
Another thing to watch out for is being given the first month of an online service for free but then being charged for subsequent months if it’s not cancelled beforehand. Teens aren’t apt to be careful about that, so make sure that they are.
However, note that some places do offer products and services for free with the only thing in it for them being the advertising benefit, and these are okay for your children to get. But it can be tough to discern if this is the case, so they should get your permission prior to taking advantage of anything that’s being offered for free.
Small Purchases Add Up
This is something that children often don’t understand, and it’s vitally important to teach this lesson so that they don’t make related mistakes in adulthood.
Small purchases do add up. Even if a parent has done a great job teaching a child the value of money, the kids might then determine that a certain amount is not all that much and not worry about spending it. However, it’s essential to point out how those small purchases can really add up. If he or she has gotten into the habit of buying something small – a “want” – every day, help them see the math of how much that adds up to over time and how that can often exceed amounts they would deem to be high.
Credit cards are a topic that should be discussed with teens prior to them turning 18 so that they know what to do when they start being offered them. Oftentimes, those who head off to college then receive a number of offers for credit cards. Will they have the knowledge to know what to do with them?
Some adults believe that credit cards should never be used, and there is a good argument for that. Those who don’t use them won’t go into the massive credit card debt that some do. However, responsible credit card use is the best way to improve somebody’s credit score, something that is apt to be quite low when they’re 18. But that benefit needs to be balanced with stressing that anything spent needs to be paid that month. It can be so easy for allow some to carry over to another month and then see the situation snowball.
This discussion on credit cards can also transition into one about the benefits of delaying gratification, the benefits of saving money for what is desired as opposed to using a credit card and buying it now.
Davenport Laroche, Shipping Container Investments Worldwide