As the medical adage goes, “an ounce of prevention is better than a pound of cure.” This expression rings true when it comes to personal finances, too. As any financial professional might tell you, people who are deep in debt due to bad spending habits find their bad fiscal habits extremely difficult to change. If children are taught smart practices, both health and financial, when they are young, they are far less likely to encounter problems when they grow up and become independent.
It’s never too early to teach children about money. Even when your children are little, teach the concept of saving by giving them a piggy-bank and instructing them to put a few coins in when they receive pocket money. Periodically open the bank together, so they can see how much money they put aside. Consider adding some periodic interest payments to the piggy-bank to teach the magic of compound interest. Budgeting can be taught by giving them a weekly allowance and “advising” them on their expenditures – savings, charity, treats, etc. As they grow older and they make their own choices, they will hopefully start to see the sense in using savings for more enduring purchases than candies, and why it’s a good thing to save up for the new item they want.
When children are teenagers, they may wish to enroll in one of the courses run by the Chaimbeplus organization (which is Hebrew for “Life in plus” – as opposed to life in overdraft), a non-profit that teaches young people healthy financial habits. As teenagers and young adults, children are old enough to understand the rules of personal financial management. If they learn the skills of reading bank and credit card statements, it will help them by preventing misunderstandings when they receive their own bills, and give them a head start in managing their own personal finances.
Teaching children how to run their finances in a capable, responsible manner is one of the greatest investments you can make in their future. And it is never too early to start.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published May 20, 2012.