by Ken Townsend
We want our children to grow up to be financially responsible. What should we be teaching them about money?
I believe that we should be very clear and concise in communicating with our children on money management. We should not over-complicate the message. We should be consistent in re-enforcing the message over a long time period. That message should center on the First Principle of sound money management, saving regularly. This may be expressed in many ways:
- Save a portion of your income regularly.
- Spend less than you earn.
- Live within your means.
- Prepare for the future by saving.
Anyone who learns and takes to heart this First Principle will be assured of a sound financial future. That person will be a saver. A saver will earn interest throughout his or her life, while a borrower will pay interest throughout his or her life. Over the long term, the difference in the amount that is available for achievement of one’s financial objectives is huge!
Financially, being a saver is the most important quality a person could have. There are other important principles of financial management and it will be important that these are learned as well. However, your child will be in the driver’s seat during the learning process.
I think parents should focus on the First Principle during the child’s elementary school years. In the high school years, this should remain the focus and we should bring in some thoughts on debt. Are there times when even a dedicated saver should borrow money? I believe there are a very limited number of situations where debt would be appropriate:
- For college or other education expenses
- For a reliable used car if it is neces sary for employment
- For a business that has the potential to earn well in excess of the cost of borrowing
- For a home at the time one has saved enough for a substantial down payment
This means no credit card debt that is past due, ever. No new cars until you are able to pay cash. No great ski trips until you are able to pay cash.
Aside from the continued emphasis on the First Principle and education on the use of credit, what could you do? You could set a good example by the way you make financial decisions. Let them know that sometimes you delay or forego spending money for something that you want. Let them know that you do not carry credit card debt, even though you may have one or two credit cards for convenience. But emphasize that you pay the credit card bills promptly to avoid paying interest. And if your record as a saver is not quite as unblemished as this, share some of the mistakes and how much better you could have done in managing your money.
The other thing that you could do is to help your child experience saving and the benefits of saving. The child could save, decide what to spend some of the savings on, decide what not to spend the savings on, because one cannot buy everything that is desired. This personal experience, even on a very small scale, could really reenforce your message.
As parents, we try to ensure that our children are grounded in sound values. Ensuring that they are prepared with the financial fundamentals is a part of that responsibility.
Ken Townsend, founder of Townsend Financial, provides personal financial planning and investment management services to residents of the Chattahoochee Valley. Townsend earned degrees from both Georgia Tech and the Wharton Graduate Business School. He is a Certified Financial Planner and a registered, independent investment advisor.
