Eliminate Hidden Dangers by Encouraging Early Money-Management Skills

en it comes to long-term planning, perhaps nothing is more popular today than setting aside money for a child’s future college education. That’s not to say that saving money for education is a requirement for being a good parent — nothing could be further from the truth. It’s just that a lot of people (and understandably so) want to ensure that their children enter that stage of their lives with options for educational freedom. Did you know, however, that many experts are now stating that there is something far more important for parents to give children regarding future finances? It’s an education in investing — and it’s something that many parents are failing to do in record numbers.

According to Palm Beach Post writer Hank Ezell, a 2005 nationwide survey of teenagers gave some disturbing results regarding knowledge of personal finance. Some of the low points included: “only about one in three of the young poll respondents said they knew much about opening a savings account or creating a budget, [and only] one in 10 knew about the power of compounding.”

Unfortunately, it’s not just the simple lack of knowledge that is creating a problem. It’s a difference in the way males and females are taught about finances and investing that is leaving many young girls in the dust and giving them a bleak financial canvas for future decision-making.

“Many surveys have shown that parents, particularly fathers, do discuss money, saving and investing with their sons, but their daughters are often left out,” states Stockhouse writer Nancy Zambell in her December, 2006 article, “Financially Fit: Your Children: An Investment in their Future.” In the same article, Zambell references a Dreyfus Gender Investment Comparison Survey which found “parents encouraged boys to begin earning money at age 13, compared to age 16-18 for girls, and that twice as many boys as girls were advised to save their money.”

Zambell’s not the only professional who has brought to light the gap in financial education between young males and females. Toddi Gunter, investment writer for BusinessWeek, recalled her personal experiences of growing up in a family that openly discussed finances in her 2000 article, “Teaching Girls the Ways of Money.” The problem? Despite her interest in finance, her questions (like many young females) were dismissed.

“My experience helps explain why so many women are uncomfortable investing. Starting in high school, I often peppered my dad with questions about personal finance and business. He usually dismissed them, saying he hoped my two sisters and I would never have to worry about those things. Later, he engaged his sons-in-law in long chats about investing while keeping conversations with his daughters light, focused mainly on family matters and ski conditions.”

The long-term consequences of such attitudes are very negative and very real. While it’s true that both adult men and women experience some amount of financial concerns throughout their lifetimes, financial issues are often ranked women’s number one concern in their lives. A March 2000 Gallup poll, for example, revealed that women ranked financial issues “as the most pressing personal concern in their lives — ahead of family, health, time and stress, and equal rights.” The reason for this is that women often don’t enter adulthood with a good understanding of personal finance and investing — a direct consequence of neglected education during the period of adolescence. Several areas relating to faulty financial education have been identified by the National Endowment for Financial Education that are especially unique to women as they progress through adulthood. These include:

?Women are more intimidated by financial issues than men.
?Women are less prepared for retirement.
?Women are poorer in retirement than men.
?Women are more conservative investors than men.

The National Endowment for Financial Education also points out that parents’ attitudes towards finances and investing often plays a bigger role than knowledge itself — especially when concerning young females. And, at least when looking at finance, perhaps the biggest issue concerning attitude is cultural stereotyping. The issue of cultural stereotyping was examined in a 2000 joint conference between women of several prominent organizations — many of whom shared the opinion that:

“A deeper theme… is the profound impact of myth and cultural stereotyping on women’s ability to attain an adequate level of financial security. These societal money messages are imprinted on impressionable girls starting at a very early age, and continue throughout life.”

So what should parents do to help their children become financial savvy adults — regardless of whether they’re male or female? Professionals recommend taking a number of steps.

1. Involve children in discussions about family finances.
According to TheMint.org, “money lands right behind sex in discussions that parents would just as soon avoid.” Don’t make the family’s financial moves a taboo topic – actively pursue children’s opinions about how money is spent. Regardless of whether or not their opinions are implemented doesn’t matter as much as children understanding that finances are important at every age.

2. Make children earn an allowance — and make them spend their own money.
An allowance helps children learn from an early age how to manage money. The important thing is to make them responsible for their spending habits; when their allowance is spent, it’s gone until the next “pay period” — no questions asked.

3. Teach older children about checking accounts and ATM cards.
There’s nothing wrong with giving older children a checking account and ATM card. Some parents even opt to create their own in-home “checking account” complete with fake checks and ATM cards to be used with the parents acting in place of a real bank. “If teens bounce a few checks at home, they may learn their lesson before they leave the nest and get into real trouble,” states TheMint.org.

4. Encourage savings by matching deposits.
Children (especially young children) tend to become very excited when they realize how fast savings can build from regular deposits.Many parents set up a system where they match some or all of a child’s deposit in order to encourage a “saver’s” mentality.

5. Encourage early investing habits.
By putting a small amount of money — even $50 or $100 — into a stock-based investment for your child, he or she can watch the market and see how his or her investments can lead to passive income. This technique works especially well if you let your child pick the stock(s) — McDonalds, Coca-Cola, or other kid-friendly companies are good choices.

By encouraging early responsibility, discussing the realities of money, and eliminating cultural stereotypes, parents can ensure that their children enter adulthood with a good understanding of sound financial practices. Keep in mind that it’s important for both male and female adults to set a positive financial example. By showing that effective money management is as important for females as it is for males, young children of both sexes have a better chance of becoming fiscally-responsible adults.

Carrie Carter:Author of: Think Your Way to Riches Kids’ Style

For more information or to arrange an interview with Carrie Carter at 810.714.3338
e-mail: ThinkYourWayToRiches@yahoo.comor visit: www.ThinkYourWayToRichesKidsStyle.com