The following set of questions and answers is an interview I recently gave to a children's magazine. Although my financial commentary is normally aimed in a different direction, the questions were challenging and my answers seem appropriate for any adult audience. As you read my responses, you're invited to think of the youngsters in your life, as you consider how you might interact so to be of help.
Q. Why is it important to instill sound money management principles in children?
A. The question answers itself. As we strive to establish other good habits in our youth, we must not ignore a vital ingredient: financial awareness. Many children grow to adulthood, devoid of an ability to handle money. The miseries that follow such a failing are indescribable.
Q. What can parents do to teach their children about money?
A. There are four things.
- Begin your indoctrination early: Recall the ancient adage: As the twig is bent, so grows the tree. As soon as your progeny develop awareness, they're entitled to instruction and guidance on the realities of the financial world.
- Mean what you say: You must display financial soundness. Whether or not you believe it, your children really pay attention to what you say and do. As the first authority that normally appears, a parent becomes a model on which the child fixates.
- Avoid spontaneous gift-giving: Though generosity may seem a fine quality, it can become inhibiting. One characteristic that builds financial self-confidence is an ability to establish and function on a budget. Don't throw a monkey wrench into the works by impulsively dumping extra money into their hands.
- Don't direct your child's discretionary spending: If a child is to learn about money, he or she must sense some meaningful connection to it. Though the parents should advise their offspring on sensible spending and saving, they must not dictate how the youths handle their earnings. The decision on how money received is to be spent-or horded, if that's the choice-is that of the recipient.
Q. Are there any outside programs that can help ensure children establish a sound financial footing?
A. Except within the family, there are only two sources of indoctrination for children: the schoolroom and the television screen. Consider the classroom. Whatever praise or criticism you may direct at the American public school system, one thing must be acknowledged: The handling of personal financial affairs is not a subject to which much attention is devoted. Whatever the average American knows about handling money did not originate there. This is understandable, of course, if only because the typical classroom teacher is equally mystified by the world of money. The second possibility, television, offers a variety of children's programs billed as educational. I'm convinced that there's no information to be gleaned from the media. Those formative years, in which the average child spends 28 hours per week in front of a television screen, does little more than inculcate a taste for Pop-Tarts, Cocoa Puffs, Hip-Hop music, designer jeans, and the emulation of celebrities.
Q. Do you believe schools do a good job of getting children ready for the real-world in the sense of fundamental responsibility?
A. I briefly touched on this, but will expand on it a bit. Here in the first decade of the 21st Century, a lot of things go on in the classroom. The subjects on which my attention was focused many decades ago-reading, writing, and arithmetic-is but a small portion of what is now stressed as vital. Monitoring relations between individuals and groups is a paramount concern. The fairness of governmental actions is debated at all levels. Improper speech is an obsession. To stifle the natural energy of children which can be distracting to professional educators, many schools resort to designating students, particularly boys, as suffering from Attention-Deficit/Hyperactivity Disorder (ADHD), for which drugs such as Ritalin are administered. It's little wonder that money handling receives short shrift in the classroom.
Q. Do you believe there's a connection between future financial success and early money management?
A. Without a doubt. The 16-year-old, with no borrowing ability, who figures a way to stretch $500 to acquire $1,000 in desired audio equipment, will become the young adult who scrutinizes the investment market carefully to invest his spare $5,000 per year. Learning not to be taken advantage of early on will carry over, to help avoid the deceptively-designed and grotesquely-hyped scams to which the majority of Americans regularly succumb.
Q. How is it that many parents raise children that aren't financially responsible?
A. This deserves an entire book. Understand that many parents are themselves incapable of conducting their own financial lives. Why, then, should we expect them to raise children in a responsible manner? It's reported, that 95% of persons reach retirement age unable to provide for themselves without outside financial assistance. Perhaps their parents a half-century ago neglected to properly rear them, and it repeats with each successive generation. If there's one common mistake, it is an inability of many parents to properly regulate their own financial lives by which, through precept and example, they might convey these principles to their progeny.
Q. How might children with a curiosity about finances pursue knowledge on the subject without parents?
A. Unfortunately, with difficulty. Prior to the age of about twelve the average child lacks exposure to finances, except for whatever involvement the parent or guardian generates. Most have no money-making opportunities. Circumstances today are different than long ago. During the Depression years in Minnesota, no enforceable child labor laws existed. Before my tenth birthday I mowed lawns in the summer and shoveled sidewalks in the winter. I recall that my parents exhibited thrift-by necessity-and I developed a similar bent.
About all that's available today to indoctrinate children into the world of money are programs designed and sponsored by investment firms. Two examples are the Jump$tart Coalition, originated in 1995 by the Merrill Lynch Foundation, and Investing Lessons for Kids, operated by the Youth Investing Committee, National Association of Investors Corporation (NAJC). However, as with most such programs, the stress is institutional advertising for customers, not meaningful financial instruction.
So without parents' input, I don't see a happy ending.
About the Author:
AL JACOBS has been a professional investor for nearly four decades. His business experience ranges from real estate, mortgage, and securities investment to appraisal, civil engineering, and the operation of a private trust company. In addition to managing his investments on a day-to-day basis, he is a featured financial columnist for both online and print publications. He is the author of Nobody's Fool: A Skeptic's Guide to Prosperity. You may subscribe to his financial Newsletter, "On the Money Trail," at no cost or obligation, by visiting www.onthemoneytrail.com.