They're refrains passed on from each generation of parents to their children: "What do you think – I'm made of money?" Or, of course, "Money doesn't grow on trees."
Discussing money with their children is something many parents dislike greatly, according to Charles Schwab & Co.'s latest online survey. While they were eager to teach their offspring about other milestones, they were sheepish about handling money and budgeting issues.
In fact, 70 percent had taught their children how to do laundry, but only 34 percent had showed them how to balance a checkbook.
The gap is more curious because many parents wished they had learned more about budgeting, saving and investing when they were young. Fifty-seven percent said they wished they had learned more about money as teenagers.
Tackling teens and money doesn't have to come with fear. "Good Morning America" financial contributor Mellody Hobson discusses how you can teach your kids about handling money without being uncomfortable.
Why Parents Don't Talk to Kids About Money
The biggest reason is a lack of education. For the most part, the concepts of saving and investing, and even basic money management, are not taught in our schools. As the online survey from Schwab revealed, there is a general sense of discomfort around these topics which make it a real challenge for parents to broach them with their children.
Compounding this feeling of uneasiness is a lack of knowledge and confidence about financial matters — which makes it difficult for parents to pass along important insights to their children.
Where to Begin
I think the best way to introduce the topic of money to your children is to do so at the dinner table. Oftentimes, it is the only time the whole family is gathered together on a regular basis.
I encourage full disclosure between parents and their children when it comes to family finances. Time and again, I see parents who are struggling financially, but want to protect their children from these struggles. By doing so, they often end up digging themselves deeper into debt by continuing to support the spending habits by their children. A little honesty will go a long way towards preventing unsustainable spending and developing a greater sense of financial responsibility.
Create a Bank Account with a Twist
First, take a field trip to the bank or to log on to your financial institution's Web site to open a passbook savings account for your child. Then, encourage them to sock away money from their summer jobs or birthday gifts, rather than spending it on the latest song on iTunes or the hottest new piece of clothing.
If you are able to do so, up the ante for your kids and reward them for their savings by matching a portion of each dollar they save. For example, give them $0.50 for every dollar. When opening this account (and each subsequent account), be sure to put it in their name. This simple act creates a sense of ownership and some level of control over their saving. Receiving statements in their own name and being empowered to make decisions about how much to save are key components to building lifelong savings habits.
How to Encourage Smart Spending
An easy and effective way to show your teen the ropes is to give them responsibility for managing the costs of their clothing, school supplies and discretionary spending — you can map out a budget together and then let them handle the details of how, where and when the money is spent.
Simply creating greater financial accountability in their every day lives can provide valuable lessons in budgeting, spending and saving which will pay off down the road. You also may want to show them how their own expenses fit into the larger family budget. A simply way to do this is to balance your checkbook with them, teaching them yet another important skill that many kids graduate high school without.
After you have reinforced good spending and saving habits, the next logical step is to set-up a mutual fund account for them. Mutual funds are a great way for beginners to invest in the stock market. They are professionally managed, offer diversification and best of all, you do not need a lot of money to get started. In fact, many funds allow you to invest with as little as $50 a month. There are many ways to invest in a mutual fund on behalf of your child — such as an education savings account, 529 plan, custodial account or even their own Roth IRA (if they have their own earned income). Whichever way you decide to invest, make sure to involve your child in the process by perhaps researching a fund together and then tracking the fund's performance over time.
Conquering the Credit Card
While some may disagree with me, I think it is a good idea to give your teenager a credit card while they are still living under your roof. Credit card debt among college students is skyrocketing. According to Nellie Mae, the average college student graduates with three times as many credit cards and twice as much credit card debt as when he entered as a freshman.
So, before your child enters college — where they will be bombarded with opportunities to sign up for credit cards — it is important to educate them about the perils of reckless credit card use. Find a card with a very low limit and walk your teen through the first few payment periods, stressing the importance of only spending what they can pay off each month and paying their bills on time. Then, turn over the responsibility for monthly payment to them. By educating your children early on about effectively managing their expenses, you will teach them a priceless lesson, which will hopefully prevent them from making costly mistakes in the future.