Tuesday, August 16, 2011

Take the Time...Your Kids Will Thank You for It

I was recently reviewing some of my notes and research and was a bit disappointed to realize that kids in this country still aren't receiving the information they need to properly manage their own personal finances.

The first item I ran across was a survey conducted of 18-22 year-olds and their parents by Wells Fargo back in the summer of 2009.  You can see the survey here but these are the key highlights:
  • 95% were not confident about reaching their finance goals (parents, 5%);
  • 92% think a budget is not important (parents, 8%)
  • 41% know what a credit score is (parents, 75%);
  • 28% understand annual percentage rates (parents, 73%);
  • 23% understand a 401(K) (parents, 73%);
  • 31% understand compound interest (parents, 64%).
The thing to keep in mind here is that this was a survey by a bank of their customers.  Imagine what those numbers would look like for those without any bank accounts whatsoever who live paycheck to paycheck and only pay cash!

Over two years later, we have not made much progress improving our kids financial education.  And it should not be surprising that they are so confused.  If our own government doesn't understand how to properly manage it's money (see previous blog post) and it is educating our children through the public school system, why should we expect kids to have a good sense of money management?  Without any financial guidance, these kids are left to the vast marketing machine that tells them frequently how much and what kind of "stuff" they must have to be "cool."   

I've gotten to the point in my life where I don't watch much TV.  There are a few shows a week that I watch so I get maybe 30-45 minutes of commercials a week?  When I grew up, TV and radio were the main source of advertising.  Since I watched more TV then, my mind was bombarded with images and slogans to encourage me to want certain "stuff."

Our kids are exposed to much more advertising than we were.  Now there are pop-up ads on websites, banner ads on your email and "focused" ads on Facebook.  The marketing folks have really spent a lot of time figuring out how to capture the dollars from the teen market.  Here's one report that outlines all the methods teens use to get information, where they shop, the amount of money they have "available" and on and on.  Most interesting to me is that in spite of all the electronic advertising today, the study determined that teenagers trust the advertisements in magazines more than any other advertising media; and companies use that information to target products to teens.  This is serious business and a lot of money is spent each year to "capture" more of the teen market.  The only way that we will help our children to avoid being sucked into this huge marketing machine is to help them learn to manage money early in their life.  And I have first hand experience.

My wife and I have taught our children the importance of managing their money wisely.  As is the case with most kids, sometimes they listen and sometimes they don't.  They have all had times where they have made great decisions and other times where they have made silly mistakes.  That is expected anytime you are learning something new;  you will not master it overnight.  The way that you are successful with personal financial management is to be patient, carefully consider the various choices and take action when you're sure you have identified the best option.  I'll write some more in coming posts about some of the new methods we've been developing to help our kids master these skills.

Each of our kids will have a unique experience with personal finance.  And so will you.  Each one of us learns differently.  There is nothing wrong with making mistakes so don't be too hard on yourself when you do.  The important thing is that we learn from those mistakes and continue seeking information that helps us learn in the ways that are best suited for our own individual personalities.

One valuable tool that any of us can use was developed by a good friend of mine, Sara J. Thompson.  It is called Life with Bills.  It is an on-line life simulation that allows kids to obtain a "job", "earn" money, and "spend" it on various things.  The system provides feedback about how they are "performing" as managers of their own finances.  The best part about the simulation is that the financial "mistakes" made in the software do not have the real "pain" that are associated with those same mistakes in the "real world."  It is an excellent companion to my book and I highly recommend trying it.

Now, before I finish this post, I want to be sure I'm not giving you wrong idea.  I'm not saying that wanting "things" and then buying them is bad.  We all have our toys and gadgets that we have acquired regardless of our age.  What is important is to have the ability to distinguish between needs and wants.  You need to pay your water bill so you have water in your home.  You may want a new iPhone but you should not skip paying your water bill because of that want. 

So think about how you can improve your financial education.  Ask your parents to show you the bills they pay each month to get an idea of how much all this "stuff" that seems "free" to you really costs.  Talk to your kids about personal finance and help them set savings goals so when something comes along that they want, they won't go broke trying to get it.   

As with all things in life, there has to be discipline and balance.  Each is equally important to achieve long term financial well being.

No comments: