One of the most vexing questions I get from the medical families I counsel is the proper way to educate their children about money. Many physicians struggle with raising their own children in a more affluent environment than the one in which they personally grew up.
Children have different “temperaments” when it comes to money. Some are born savers, others not so much. This “hard wired” characteristic is somewhat difficult to change, and will have a great impact on that child’s later financial behavior. Yet, there are still some behavioral patterns and examples that a parent can set and reinforce.
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Here are some ways to foster smart money skills during the various stages of childhood:
During the grade school years. Many advisers and studies suggest that building a work ethic and encouraging some delayed gratification helps children do better socially in later life. An allowance and some chores may help much in this regard. Also consider teaching children to put aside some of their funds for buying larger purchases in the future and encourage children to give to charity. This may help to build a sense of gratitude and develop a good habit for delayed gratification.
During late junior high and high school. Encourage the young adult to pursue an outside job. He will definitely learn how hard it is to earn and save money, and develop a much better understanding of what it takes to buy things he wants. In addition, he will learn to show up on time and follow rules. I've heard it said more than once by client families that a young person's job motivated them to get a further and more practical education.
During these years, introducing both a checking account and a credit card is worthwhile. The credit card can be a debit card attached to the child's checking account (which you can help teach her to balance), or one of the prepaid cards that is recharged online. This provides a great opportunity to introduce the child to the idea of saving for the future. If she is listening, you can discuss compound interest, investment principles, and the fact that saving 15 percent to 20 percent of their earnings from an early age is a recipe for almost certain financial security.
During the 20s. Reinforce and amplify all of the above. If asked for money, consider whether granting the wish will lead to independence or further dependency, and act accordingly. A young working adult who is trying to save some of his income would certainly welcome a "match" to his IRA or retirement plan from a parent who is happy to see that he has learned something about money!
Given each child's hard wired temperament and personality, how much of your efforts will bear fruit is uncertain. However, many studies suggest that children do indeed learn from their parents' behavior, so practice what you preach.