How to talk to your kids about money

Few of us learned anything about sound financial behavior from classes in high school or college, which leaves us to learn those lessons on our own-and usually the hard (read: expensive) way.

Maybe that’s why so few parents dare to discuss money matters with their children.

But kids depend on their parents to teach them the basics of just about everything in life, and that includes the subject of personal finance. Otherwise, they will be left to learn their lessons from the financial world itself-and the interests of that world don’t always align with their own best interests.

A problem for many of us is the inability to delay gratification, which causes us to buy more cars, larger homes, and more stuff than we can afford, leaving no room for error if there is a health problem, job loss, rising interest rates, or other financial or economic changes.

Many students head off to college without a basic understanding of finances or the importance of delayed gratification. Their first lesson in compounding interest comes from the credit card they signed up for outside the bookstore in order to get that free T-shirt. Because of this, many graduates start their post-college lives at a financial disadvantage, finding out that at 15 or 20 percent interest, several thousand dollars of debt can take a long time to recover from (not to mention the average student now has loan debt of $20,000, and the average debt from medical school is $175,000, according to the American Academy of Family Physicians).

As your children embark on a life of their own, make sure that you discuss a budget with them. Let them come up with the categories and amounts.

Once they do, have a conversation about what is reasonable. Most of the time this is the first experience they will have living within a budget, and it is important to learn that there are consequences for not staying within that budget. In order to teach them the importance of hard work, establish that they will have to earn their “fun” money.

Don’t be afraid to explain some of the financial mistakes you’ve made and talk with them about how they can avoid making those same mistakes.

Remember that there is an important distinction between helping our children grow into independent adults and enabling them to become dependent on you. Sometimes, the earlier they learn these hard lessons, the better.

Several organizations are taking the lead in providing financial literacy with objective and unbiased information. One of those is the American Institute of Certified Public Accountants.

One site that we can all learn something from is the AICPA’s 360 Degrees of Financial Literacy (www.360financialliteracy.org). A related initiative by the AICPA is the Feed the Pig campaign (www.feedthepig.org). Its goal is to educate young people about preparing for long-term financial security.

Another recent initiative is a partnership between the National Association of Personal Financial Advisors, TD Ameritrade, and Kiplinger’s. The NAPFA Consumer Education Foundation and its partners are bringing financial education and awareness to individuals through their “Your Money” bus tour, which will travel across the country this year.

It is important to take the initiative to teach yourself and to learn from some of the impartial resources available. The more you know, the better you will be at helping your children start off on the correct financial path.