Children learn math, English and science skills in the classroom, but most schools have abandoned teaching basic financial literacy. Surprisingly, even institutions of higher education aren’t fulfilling the need. About 57 percent of millennials believe that college failed to teach them personal finance skills, according to a Generation Opportunity survey.
This all adds up to parents bearing most of the responsibility to raise financially fit kids. The good news is that students who study personal finance – whether from external sources or in their homes – fare significantly better than their less-informed peers. Studies show that students who learn about budgeting and saving are more apt to become consumers who earmark part of their income for savings and pay off credit card balances each month – and are less likely to become compulsive buyers, max out credit cards and make late payments.
As the new year presents fresh opportunities, you can make 2017 the year you teach your kids the ABCs of money management. As Daniel Bortz, staff writer for U.S. News & World Report explores, it’s sure to pay off.
“Instilling good money habits in your children is arguably one of life’s most important lessons,” he writes. “With the right approach, your child will learn valuable financial habits.”
One of the best ways to begin to talk with your kids about personal finance is to teach them about budgeting. By introducing the concept early – and often – kids can better understand the benefits of budgeting. Although there are specific lessons to teach kids at every stage of development, you can stick to the budgeting basics at every age by simply sharing parts of your household budget with them.
Bev O’Shea, a staff writer at NerdWallet, recommends four steps to setting up budgets that you and your children can follow:
- Figure out your income – Older children can begin to grasp the concept of paying taxes out of your income, but for younger children, you can choose a simple, set amount to use as a base income.
- Choose a budget – Create a budget format that covers your needs, some of your wants, and then savings for the future and emergencies. To make it easier for children to understand why this is important, O’Shea suggests considering the popular 50/30/20 budget: spend roughly 50 percent of your after-tax dollars on necessities, no more than 30 percent on wants, and at least 20 percent on savings and debt repayment. You can always modify this amount to include your giving goals as well.
- Track your progress – It may be helpful to remember that budgets are not set in stone. Things happen (is the refrigerator supposed to make that noise?) and circumstances change (congratulations on that promotion!), which is why experts recommend checking your progress against budgets regularly, such as every payday, and consider including your children in the review.
- Automate your budget – Your family budget can benefit from automatic bill payments and diverting a portion of your deposited paycheck into an online savings account. This concept may be a little advanced for young learners, but older school-age children will understand the idea.
Bottom line: Talking about budgeting early and often sets a great example for your kids. ECCU offers many resources to help you pass along fundamental financial skills. When you’re ready to teach your children about the basics of saving, consider introducing your children to the ECCU family by opening an account with us.