Parents Not Teaching Their Children Financial Skills

[jeffrey]

A Smart Savings survey by Ameriquest Mortgage Company (conducted by Luntz, Maslansky Strategic Research) has found that most students believe they will have a higher quality of life than their parents event though many lack a basic understanding of the minimum wage, average income and the price of a home. While the majority of high school and college students have high aspirations for their futures, they face two fundamental challenges they must overcome in order to achieve the lives that they desire: 1) young adults are currently receiving either insufficient or incorrect financial knowledge from their parents, and 2) they lack a firm understanding of potential income and costs.




The average student expects to retire at 59, 20% believe their first starting salary will exceed $50,000 and most believe that they will own a home in their lifetime according to the survey. Even with these beliefs, the students don't necessarily have a strong basis for any of these expectations. For example, while 94% of students believe it is at least somewhat likely they will own a home in the next 20 years, more than 80% underestimate the average cost of a single-family home.

Part of the problem arises from a lack of financial literacy being passed on from parents to their children. Parents - even those who are making the effort - don't seem to be doing enough to pass on fundamental financial responsibility. While 60% of parents believe that they are their child's primary source of financial advice, only 38% of students agree.

The survey also found that lower-income kids have a a much greater challenge to gain financial savvy than their wealthier counterparts. In fact, the research suggests that there is a serious divide between economic classes when it comes to understanding the importance of saving and investing. This is despite the fact that low-income parents are working harder than their wealthier counterparts to educate their kids about saving money with 28% of lower-income parents talking to their kids every day about saving versus only 17% of upper income parents.

The survey found that most low-income parents are not prepared to offer sound financial advice about more complex matters like investing. While 53% of upper income parents believe they are very informed about money matters, only 30% of lower income parents felt the same way. Low income parents were less accurate in their answers than their wealthier counterparts when asked a series of basic financial questions about things like housing prices and Social Security.

"It is clear that financial insecurity and economic adversity are a vicious cycle that is being passed down from one generation to the next," said Frank Luntz, who designed the study as part of an ongoing examination of financial knowledge, beliefs and expectations. "We are going to see a growing lower class simply because they don't have a command of the facts or behavior that leads to economic security. Good financial education is the only solution."

The survey also found a gap between the financial aspirations of girls and their male peers, suggesting that girls do not dream as loftily as boys when it comes to financial independence. 25% of young women surveyed believe that their starting salary will be $40,000 a year, while 33% of their male counterparts expect to make at least that much. 24% of young women also said they believe that it's at least "somewhat" important to marry someone wealthier than themselves in order to achieve financial stability.

Part of the problem is that only certain aspects of financial responsibility are being discussed by parents. 77% of parents talk to their kids frequently about things like "delaying gratification" by saving money now so that they can enjoy something better at a later date, but only 30% of families talk about keeping a budget or how to use a checking account. When it comes to investing, the lack of communication is even worse. Less than 10% of parents discuss the differences between stocks, bonds, and mutual funds with their kids.

When parents do discuss a range of financial matters with their kids, the children catch onto the importance of the financial matters. When students were asked a series of financial questions ranging from "What is the average personal annual income in the U.S.?" to "What is the current minimum wage?" the kids whose parents had discussed budgeting and debt, or had encouraged them to get a job, were able to answer the questions more accurately.

1,203 people were polled in the survey with 603 being high school or college students and 600 the parents of high school- and college-age children.

[TwoNickles]

I totally agree. My parents taught me zip, zilch, nada about finances, and it has been a struggle for me all my life (now 56) to wisely manage my money. Although I am semi-successful; owning a home, a $60K salary; but I should have done a lot better. The one thing I still struggle with the most is maintaining a budget. But, I have determined, that even at my age, it's still not to late and I AM going to make a budget work.

[Snoopy2645]

I think these kids are in for a huge suprise!!! They dont know what minimum wage is & they think thier starting salary will be more than 50k & more than 80% are underestimating the cost of a home well someday they will have a huge wakeup call & I actually feel sorry for them when they do.

I am sad though that people dont teach the values of budgeting & investing like they used to. I hope my kids are learning these things. I teach them about coupons & like to get free stuff & they do too. I have had my 10 yr buy bonds with her allowance. And I am trying to teach my 10 yr old how to budget her allowance also. I really truly hope they are learning something good from it all. I know my dh is a no win situation so I have to work on the kids hoping they pick up my spending habbits & mine & dh's work ethics.

[The Budget Man]

Being a parent is hard. You get all the blame for what you don't do and none of the praise for what you do do.

When a child learns good budgeting habits you are pleased but noone ever thanks the you.

A good way to help any child is to show them where to go for good help. After all, even though the theory of money hasn't changed, the way you budget today is totally different since we entered the electronic age.

Enjoy Your Money
The Budget Man

www.PersonalityBudgeting.com
The starting point for today's budgets

[PRICEPLUS]

I work hard at explaining finance to my daughter. It is a grave responsibility!

[Broken Arrow]

Originally Posted by The Budget Man

Being a parent is hard. You get all the blame for what you don't do and none of the praise for what you do do.

Spoken like a true parent.

[Aleta]

Frankly, I think a lot of them don't want our advice. Sometimes I will mention something to one of my sons and he'll say something like, "Not everyone can live the way you and Dad do". My step-father knew alot but never bothered teaching anyone. I would have loved to have had some of his wisdom.

[LivingAlmostLarge]

I learned about debt and savings from my parents. But more than that forget. This is how my mom saved her way to $150k but never invested it until recently. sigh.

[Aleta]

I think in reality they catch more by what you do instead of what you say and they look at how you live, arguing over money, etc. I had my own hangups about money because of what I saw when I was growing up.

[miclason]

my niece is 19, 2 years out of highschool on her second semester at University, she can't get a job! Mostly, because she wants:
1. a job that's 10am- 3:00pm
2. weekends off
3. $1,500/month (which is more than my sister- with a degree and over 10 years experience in her field makes!)
4. light work
5. medical insurance
6. others (car and gas, preferrably)

Now, I'm not saying there aren't any jobs like this out there (although, they are probably very few...the schedule, especially, will not be easy to find!)..but these jobs certainly don't go to 19 year old high school graduates with no experience and "intermediate" English skills!

[stressedmama]

I guess I'm an oddball. Growing up we were working class and my parents always talked to me about saving money before I purchased something, starting a 401K when I started my first real job, and teaching about how to balance a checkbook. They even talked to me about CDs, mutal funds, and stocks (a little). Plus my dad would constantly tell me how much things cost like the utilities, food, etc. especially as I got older. I'm sure glad they did. I'm 29 and in much better financial shape then a lot of people in their 40s and 50s that I work with. I think seeing them live out what they always preached to me about really made a difference.

I hope to pass along this kind of knowledge to my kids. I'm already trying to teach my 3 year old about saving money first in order to buy something. I just hope my advise sticks as he gets older. Time will tell.

[geojen]

Originally Posted by Aleta

Frankly, I think a lot of them don't want our advice. Sometimes I will mention something to one of my sons and he'll say something like, "Not everyone can live the way you and Dad do". My step-father knew alot but never bothered teaching anyone. I would have loved to have had some of his wisdom.

I is probably true, but not because they don't care about money, they just think they already know everything. When I was a teenager, deep down I knew my parents were usually right, but no way would I admit it. Nor would I willingly ask/ gracefully receive any advice given.

Plus, isn't it true that teenagers are physically incapable of really being able to judge where their own actions will lead them? I saw that on Oprah once, that a fifteen-year-old brain is incapable of accurately judging the consequences of its actions. So, if that is true, is it really their fault or even their folks' fault that they have no concept of financial consequences?

That being said, my folks didn't tell me much either.

[jIM_Ohio]

A person learns for many reasons. Some might learn because their parents taught them. Some might learn because life taught them.

The most common problem I see with kids/young adults is they have not ever been at rock bottom- their parents always rescued them.

If a parent taught their kids one thing, and one thing only, it should be about how to create opportunities for themselve and how to react to the adversity that same opportunity requires.

I call this "critical thinking". My engineering degree taught me this early on- I sure did not learn it from my parents. Going through last 2-3 years of college on my own sure helped too.

It is true that a 15 year old is not able to assess risk and reward- that part of brain is not filly functional until around age 18 or 19, I think. But not fully developed is much different than not capabale of doing something at all.

I see parents doing homework for their kids. I see parents arguing and fighting over what position their kids play on the soccer team. I see parents allowing their kids to do everything and anything they want without saying "no". This means the kids do not learn compromise, do not learn to interact with others to get what they want, and do not generally learn to cope with disappointment or make an opportunity from a failure.

I had a girl on my U12 soccer team, she made a really bad play early in a game 2 weeks ago. Other team scored as a direct result and we lost the game 1-0. What I told the team was that it was not the mistake which told be anything about the girl, it was how she responded (she played much better after mistake and outside of a brief conversation at halftime I did not really talk much about it until after the game). The player knew the mistake, and once corrected, she played the best of nearly anyone on the team that day.

It's not the mistakes you make which define you. it's how you recover from them.

This requires 2 things
1) the freedom from parents and adults for the kids to make the mistakes
2) the ability to analyze, the will to do better and the creativeness to recover from the same mistake.

[PrincessPerky]

In general in America modern parents do not teach their children anything that might fall into the realm of 'academic'..so I can't see why the majority would make an exception for finance......come to think of it parents today don't teach how to catch a football either, that is for the schools and camps to do....

[fourpiggies]

We started giving our children a weekly allowance divided between 4 piggy banks when our children turned three years old. We called it "The 4 Piggies concept", and our financial planner thought it was such a unique idea, that being a teacher and author, I've written a children's book about our experience with how our little boy used his money from his 4 piggy banks during the year. You can find out more information on our website at fourpiggies.com

[hakuna matata]

We started pretty early with my daughter. She gets an allowance and immediately has to put half away--paying herself first. Then she can earn additional money by emptying the dishwasher, etc. She has turned out to be a pretty good saver so far.

My wife and I have made it our goal that she will not graduate high school without having a fundamental understanding of the basics of how credit cards work, how compounding works, etc. This isn't taught in schools and I never learned it from my parents--but she will!

I did a simple spread sheet and showed her how compounding works on a Roth. I showed her how if she started with $20K at her age now and did nothing until she retired she would have some $x million by age 65. But then I said, what if you at age 21 decided you wanted to take out $10k for a new car---so we did on the spreadsheet and went to the end of the spread sheet. Her comment "wow--I just lost a million dollars!" Great insight sweetie! I was very proud of her. I really think that exercise illustrated for her that simple decisions can have great impacts down the road.

So we plan on teaching her all about money. I only wish I had the education myself when I was her age. Good luck to the rest of you parents out there!