What should be your child’s first lesson about Financial Literacy (money management)?

Question  What should be your child’s first lesson about Financial Literacy (money management)?

Answer  How to save money.

Complete Answer  A basic assumption of Financial Literacy (money management) is “Don’t buy stuff if you don’t have the money to pay for it”. Most children know that instinctively. Unfortunately some adults who find themselves in financial difficulty seemed to have forgotten that basic assumption of Financial Literacy.

A child’s first lesson in Financial Literacy is how to save money. It’s called “Pay Yourself First” (PYF Savings). Every time a child has money to spend, a birthday gift, money earned for raking a neighbor’s yard, et cetera, 10% should be saved. This should be automatic and nonnegotiable.

Although these concepts are beyond the understanding of a child, in the future the PYF Saving account could be used as a rainy-day fund, a child’s personal bank to borrow money from, and eventually a retirement account.

Financial Literacy Knowledge/Skill

Teach your child how to save money using the concept of  “Pay Yourself First”.

Comments or Questions

Thank you for visiting the Financial Literacy a Life Skill site. Please feel free to submit comments and/or questions you may have about managing your money (Financial Literacy).

 

When should you teach your child(ren) about money?

Question  When should you teach your child(ren) about money?

Answer  When a child is given the opportunity to make a financial decision.

Complete Answer  It is never too early to teach your child how to handle money (Financial Literacy).  The best time to talk to your child about handling money is when they are given the opportunity to make a financial decision.

Please Note: A financial decision is made up of two parts;
1. the decision to spend or not spend money and
2. what will be purchased.

Your feelings of apprehension are normal and are similar to the feelings you had when your child first rode a two-wheel bicycle without you jogging beside them. I can assure you of two things, 1. they will make mistakes 2. but they will make fewer mistakes because you shared with them your experience and knowledge of handling money (Financial Literacy).

Financial Literacy Knowledge/Skill

You should teach your child(ren) how to handle money (Financial Literacy) when they are given the opportunity to make a financial decision – to spend or not spend and what will be purchased.

Comments or Questions

Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and/or questions you may have about managing your money (Financial Literacy).

Next week’s topic: What should be your child’s first lesson about Financial Literacy (money management)? 

Should you teach your child(ren) about money?

Question Should you teach your child(ren) about money?

Answer Yes.

Complete Answer  “Give me a fish and I can live for a day, teach me to fish and I can live for a lifetime”. Consistent with that theme and as your child’s first teacher, one of the most valuable lessons you could teach your child is how to manage their money – Financial Literacy. My parents used the expression, “How to stand on your own two feet”. Additionally, our children learn from seeing what we do.

There is a reluctance to talk about finances, especially with our children. “People would rather talk about their sex lives than their finances.”17 As difficult and awkward that may be, Financial Literacy it is one of the most valuable lessons a parent could give a child.

The “when” and “what” talks about finances will be covered in coming posts.

Financial Literacy Knowledge/Skill

Teach your child(ren) how to manage their money – Financial Literacy.

Comments or Questions

Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and/or questions you may have about managing your money (Financial Literacy).

Next week’s topic: When should you teach your child(ren) about money?

What does a family’s spending plan look like?

Question  What does a family’s spending plan look like?

Answer  Family spending/expenses take priority over individual spending/expenses.

Complete Answer A family spending plan is similar to a spending plan for a single person – simply combine net incomes to get Family Net Income.

Family Net Income 100%
Pay Your Family First (Savings) 10%
Housing 30%
Transportation 15%
Health & Medical, Giving, Retirement, Debt Paydown, et cetera 20%
Lifestyle 25%

However, because each member of a family is financially responsible for the financial well-being of the entire family, family spending/expenses take priority over individual spending/expenses. In the above example, the first four categories, Savings, Housing, Transportation, Health & Medical et al,  would be considered family expenses and take priority over Lifestyle spending/expenses.

Because we all have different values, interests and priorities, in my family’s spending plan, Lifestyle spending is divided in half; 12.5% for my wife and 12.5% for me. Your family’s Spending Plan will be unique to your family. The above Plan is only provided as a guide. Additionally, your family’s income and expenses vary from month to month. You both get to decide what categories are included and how much is spent for each in your Plan.

Financial Literacy Knowledge/Skill

Develop a Family Spending Plan unique for your family.

Comments or Questions

Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and/or questions you may have about managing your money (Financial Literacy).

Next week’s topic: Should you teach your child(ren) about money?

Do personal finances change after you are married?

Question Do personal finances change after you are married?

Answer Yes.

Complete Answer It is no longer “your money” and “my money”, it is “our family’s money”. Jesus said to the Pharisees, “God made them male and female. For this reason, a man shall leave his father and mother, and the two shall become as one flesh”.16 All family members are expected to contribute to and are responsible for the financial well-being of the family.

The net pay that each person brings home is added together to equal the “family income”. Very rarely do both spouses earn the exact same pay. That does not matter – each is contributing what they can to the family. Remember that the pay you receive for your work is a gift from the Good Lord. If you make more money than your spouse, thank the Lord for the talents given to you and the opportunity to earn more money. If you make less money than your spouse, thank the Lord for your spouse.

Financial Literacy Knowledge/Skill

All family members are expected to contribute to and are responsible for the financial well-being of the family.

Comments or Questions

Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and/or questions you may have about managing your money (Financial Literacy).

Next week’s topic: What does a family’s spending plan look like?

Should personal finances be discussed before you are married?

Question Should personal finances be discussed before you are married?

Answer Yes.

Complete Answer  Discussing one’s personal finances is difficult, but it’s a discussion that needs to take place. Each person brings to the marriage their individual financial history, current finances, and future financial goals. The discussion should include those things that will, or could in the future, have a financial impact on your marriage. It is absolutely imperative that each person be completely honest about their finances with their future spouse. In a recent survey, 31% of 1,045 respondents would consider it a “deal breaker” if a person in a relationship lied about debt.13 You can imagine how disheartening it would be to find out that after you said, “I do” you find out that the love of your life has $33,000.00 in student loans14 or has a credit card bill that has gone into collections. Of course you may also learn that your future spouse’s rich aunt has set up a college trust fund to pay for any great nieces’ or nephews’ future education.

A good place to begin the discussion about finances is to share your credit score and credit report with your future spouse. Be mindful that a credit score is a number derived from a credit report. A credit report is a detailed credit history. You can get a free credit report once a year from each of the three major credit reporting agencies. Log on to www.annualcreditreport.com to request your credit report. You may have to pay for your numerical credit score. Your credit score will impact your ability to secure a home mortgage and the interest rate you will pay. It will also determine the interest rate for auto loans and credit cards. Auto insurance rates as well may be affected by a credit score. Some employers use your credit score as a factor to consider when you apply for a job. Because a credit report contains a wealth of information, it will provide many topics for discussion. Which in turn increases communications.

Pleas Note: Two of the most common reasons given for divorce are “money problems” and “lack of communications”.15

Financial Literacy Knowledge/Skill

Discuss personal finances before you are married.

Comments or Questions

Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and/or questions you may have about managing your money (Financial Literacy).

Next week’s topic:  Do personal finances change after you are married?