As the spring school semester begins, one of the most valuable lessons that kids, especially teens, can learn isn’t being taught in a classroom setting: financial literacy.
Or, how not to graduate into financial problems.
But, aside from the birds and the bees talk, the money talk is probably the most uncomfortable for parents. To help ease this anxiety-ridden discussion, below are some key areas that should be discussed as we enter this new school year.
Where does money come from?
Turns out, money neither grows on trees nor out of parents’ wallets. And, not all money is meant to be for “fun,” such as at the movies, with a new girlfriend or on new iPod songs.
But how do you get a kid to understand this?
Why not focus on a “money in, money out” budget with them?
Often, children focus only on money going out. But where does it go? And when? And why? A budget, reviewed with and by a parent each month, can be an easy way to show the value of money on a regular basis.
For example, if a child gets a $40 allowance each month, have them develop a budget to make that money last for an entire month. This means saying “no” to spending all the “fun” money at once. It also helps children understand how to prioritize.
The lesson: Sometimes a lifestyle adjustment is required in order to ensure one does not exceed money going out versus money coming in.
Credit cards are supposed to be paid back?
Believe it or not, we actually recommend working with children on building credit at a young age, but only if they can do so without maxing out on their available balance, straining to make payments or, worse, defaulting.
This is an especially important lesson to be instilling before college. Why?
Credit card companies generally offer low limits to young adults entering college. This typically allows for more freshmen to apply and get approved as soon as possible. Some offer incentives to apply. Many companies simply place applications on college desks and in dorms — and freshmen apply by the thousands, not realizing that every penny spent on that credit card is owed back, with interest.
By working with children on credit starting from a young age, parents can help them grow to understand the impact of good or bad credit on one’s life. In addition, just as bad spending is habit-forming, so are good spending and saving.
Don’t do it alone!
Sure, parents are the first — and best — figures to talk about money with children and teens. However, you are not alone! There are resources to help reinforce your messages and lessons. For example, Junior Achievement is available to most high school students in Arizona – Junior Achievement.
“Junior Achievement of Arizona has been educating K-12 students about entrepreneurship, work readiness and financial literacy since 1957,” says Joyce Richards, president of Junior Achievement of Arizona. “This year alone, we will engage more than 72,000 Arizona students in our programs.”
The organization, known as JA to most Arizona educators and business leaders, offers supplemental programs to elementary, middle and high schools statewide as well as after-school programs and on-site education opportunities.
The JA Finance Park enables students to build foundations for making intelligent, life-long personal finance decisions. The program, focused on middle school-age kids, consists of 19 teacher-led lessons at school, and is coupled by a half-day on-site simulation in the Finance Park, which is located in Tempe and done as a field trip in most cases. This on-site simulation takes kids on a journey to create a personal budget including rent/mortgage, car payments, insurance, savings, entertainment, groceries and more. They are even given simulated careers and salaries.
“As students strive to create a balanced budget, they begin to understand the value of money, and make the connection between hard work, education, and their future earnings,” Richards says.