Superhero Dads of Money Management
By Anita Ward, President Operation HOPE Inc.
My dad kaboomed like a superhero. He vaulted skyscrapers, battled villains, and flew through the universe to protect his family. Through the lens of my 5-year-old eyes, my Dad was an Avenger, a defender of justice – my hero. I was certain he donned a mask and cape and routinely saved the world. Decades later memories of him remain embedded in my life and heart, but a realization emerges that maybe his most heroic act focused on more mundane lessons of money, credit and security.
A study from the University of Illinois found that 36% of youth and young adults are at risk financially. They don’t understand basic economic concepts, employ sound financial practices, build savings, or speak the language of money. The financial literacy of a generation is at risk, and the country needs financial superheroes to ensure the wellbeing of this and future generations.
As we celebrate Father’s Day in 2019, let’s recognize the influence dads have in their children’s lives. Financial literacy and money management are crucial skills for future success, but only 17 states require financial literacy programs in high school, and only 7 of those states test for financial proficiency. Until the academic standards improve nationwide, dads, and moms too, may need to improve their financial heroism by making sure that their kids know how money works. Financial literacy starts at home.
How can superhero dads and moms prepare their children for a financially stable future?
Teach the language of money early. Any language is easier to learn when you are young, and the language of money is no different. Much of the research concludes that saving and spending behavior can be shaped by age five, but typically parents are not discussing finances until the child is a teen, and by then behaviors and attitudes toward money have been established. Make finance a family topic of discussion. This early conversation begins with the difference between wants and needs. People who can distinguish between what is necessary and what is nice to have make smart financial decisions. Young children will not understand sophisticated discussions about interest rates, but they will understand needs versus wants. A few adults, including myself when Tamara Mellon releases a new shoe, could benefit from a remedial course in wants and needs!
Provide your children with financial tools and give them some responsibility for handling money. Children need to learn how to save and spend money, and one way they learn is by watching their parents. Actively share your approach to handling money, paying bills and making purchases. Sharing stories and having an open and authentic discussion about finances will reinforce each lesson.
Create a budget with your children. Set goals, establish an income through their allowance, and identify expenses. Develop the budget with them and set up strategies for saving and spending. Teach them how to save. With a budget in place, open a bank account with your children. This will introduce them to banking and it will provide a formal account for their savings. A savings account was a “right of passage” in my family. For our twelfth birthdays, our parents planned a visit to the bank where we opened a savings account, deposited all we had saved, and made a plan for the year. Each one of us was introduced to our “banker”, who told us about compound interest and how the money in savings accounts can accumulate value over time. I may not have understood everything that she was telling me, but I sensed that money had a time value, and I felt very grown up in the process. That small ceremony provided me with an understanding that money was serious and it imprinted the importance of savings into my behavior. While this was a bit unusual for a bank when I was 12, now every bank has tools for young people, and many are digital, so be sure to take advantage of them and engage your children in the process.
Lessons around delayed gratification should be aligned with savings behavior. Solid money management skills rely on self-discipline. Children need to learn how to wait to make a purchase. This lesson ties very closely with the fundamentals of wants versus needs. Delaying an impulsive purchase because it is not needed now will help your child establish strong money management behaviors.
To help manage money and to support the delayed gratification model, every child must learn how to build and follow a budget. Budgets help children understand that money is finite, and that every purchase has an associated opportunity cost. There are trade-offs; if money is spent on one item it is not available to make another purchase. One way to teach this lesson is to involve children in the spend decision-making process. Create a budget and grocery list and ask your child to make choices between items. This is also a good way to teach wants versus needs as well.
By introducing money management early, you will shape your child’s attitude toward savings, spending and managing money. Over time, you can introduce credit and debt into the conversation. While you don’t want to encourage your children to open credit cards, you can help them understand why. They need to understand credit cards as loans that must be repaid and repayment comes with a hefty interest percentage. Credit means borrowing from others, and there is a cost to that. Explaining a credit score and report is an important part of this conversation. It’s much easier to maintain a high credit score than it is to repair a low one.
Remember to make money management lessons fun. Create projects that require funding, like taking the family to the movies, or eating at a fancy restaurant, or vacationing somewhere special. Involve them in the budgeting, planning and assessing the financial implications of decisions. These lessons will stick with them for life.
Have a Happy Father’s Day. Smile when you receive the crazy tie, or the “World’s Best Father” T-shirt and coffee mug, and know confidently that one day your children will be sharing your financial lessons with their children. We can break the cycle of financial illiteracy.
If you need credit and money management assistance or want to enroll your children in financial literacy and entrepreneurship classes, contact Operation HOPE. www.operationhope.org The coaching and classes are free, and our coaches will speak to you and your children about smart money choices.