Tag Archives: financial literacy

A Gift Better Than Money: Financial Literacy

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In my last post, I talked about a conversation with co-workers regarding life insurance and one co-worker said that he preferred a whole life insurance policy because he wanted to leave a legacy to his children. My co-worker is not great with his finances and lives paycheck to paycheck, so I can see why he thinks that leaving a large sum of money would have life changing effects.

Another co-worker said that she and her husband were ready to retire, but continue to work because they want to make sure they have enough to pay for their kids’ college tuition and to help out with their future wedding and downpayment on their first house. Yet another co-worker who is of retirement age continues to work to support her adult children who have failed to launch. While I won’t have to worry about how to deal with money matters with an adult child since my son just turned 2 years old a few months ago, this topic has been on my mind after having those conversations.

I can understand wanting to to help out your child, and I would want to help my child out with college and other milestones they have in life. It’s natural to want the best for your child. Millenials nowadays often have a heavy burden of student loans and an unstable job economy. I think it’s wonderful if a parent, who is financially able to, lends a helping hand to an adult child. However, I’ve seen with a few of my co-workers where they are financially support their adult child who constantly gets into trouble with money. Enabling an adult child who constantly gets into money woes is a disservice to them.

If every time your child struggles with financial issues, you step in to fix the problem, your adult child will never learn to deal with those financial issues. Inevitably, those same financial issues will pop up again, causing a vicious cycle, which the adult child has no incentive to remedy since the Bank of Mom and Dad is always there for a bailout. By always stepping in to financially help out an adult child who makes financial mistakes, you prevent them from learning to solve problems, from learning that there are consequences to bad financial decisions, and from learning to take responsibility. While the adult child might think that receiving money from a parent to help out with a financial crisis is a great gift, I think that the biggest gift I’d like to impart on my child is the gift of financial literacy.

Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime. – Chinese Proverb

Shannon Ryan, who blogs at The Heavy Purse (which is a valuable resource for teaching children to be financially literate), recently wrote that one of the greatest responsibilities as a parent isn’t to tell her “children what to think, but to help them think for themselves, which means they have to learn how to make decisions, good and bad, on their own.” For another great resource to help you in raising financially literate children, check out the free e-book How to Teach Your Kids About Money, written by Laurie who blogs at The Frugal Farmer.

In my opinion, the best way to raise a financially literate child is to lead by example. Often times, children will learn bad financial habits from their parents and continue those bad habits in adulthood. Another great way to teach them to be financially literate is to talk about money and money decisions, and giving them an opportunity to make their own decisions and learn from their mistakes. I am always thankful that my parents have been great financial role models, and have taught me the benefits of saving and of investing.

In a recent news story, a wealthy real estate mogul passed away and left a large inheritance to his daughters. However, the inheritance has many strings attached. His daughters will receive $687,000 when they get married, but ONLY if her future husband signs a prenuptial agreement. Another $1 million is given if the daughters graduate “from an accredited university” and writes an essay describing what she intends to do with the money (the essay is subject to approval by the trustees appointed by their father). In the year 2020, the trust will pay out three times the daughter’s salary (apparently as incentive to earn a high income). What if the daughters became a stay-at-home-mom you ask? Well, that’s covered too. The daughter will receive three percent of the value of the trust, but the child must not be born out of wedlock. It is as if their father is trying to impart his financial values from the grave. Granted, it is a large inheritance, but if he had taught his daughters to be financially literate as children, then he should trust that they will be responsible to handle the money.

My Journey to Financial Literacy

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A lot of people get the “Aha” moment with their finances when they’ve hit rock bottom. They’ve declared bankruptcy, their bills are up to their eyeballs or they see the amount of debt that they’ve accumulated. Some people see their parents struggle with finances and vow never to go through that. Some get the “aha” moment and see the light after going to a financial seminar or after reading a book from a financial guru. I don’t have an interesting story about an “Aha” moment, because I don’t think I ever had one. Rather than one moment which instantly changed my thoughts on finances, my journey in life has shaped the way I deal with my finances.

Frugal Role Models

Growing up, my parents were always frugal with their money. We had all the necessities like food on the table and a place to live. No, cable television and fancy clothes are not necessities. I don’t remember a specific lesson or lecture that my parents gave to teach me about financial literacy. I think I just saw the way they valued money, and learned that spending money frivolously was not something that was appropriate.

I remember one time when my mom brought my sister and me to the mall. I don’t remember how old I was but I was a pretty young child. We went to the toy store to purchase a gift to bring to a birthday party. At the store, I saw a toy that I really wanted. It was a children’s tool set. (Thinking back, I find it quite odd that I had an interest in tools as I am not handy at all!) I told my mom that I wanted it, but she told me that we were just there to buy a gift and that I had plenty of toys at home. We left the store, and later on when it was time to go home, my mom looked at me, and said, “you never ask for anything, if you really want it, we can go back and get it.” Even at that young age, I could tell that she really wanted to buy me that toy, but also understood that money was not to be wasted. I looked up at my mom and told her I didn’t want it that much, and that I did have toys at home I could play with. Maybe that’s why I’m not that handy, I never got that tool set! Mystery solved.

Saving

As a child, I’d often receive money for Christmas, Chinese New Year and my birthday. My parents allowed me to put the money into a piggy bank. Once in awhile, my mom would ask my sister and I if we wanted to transfer the money from our piggy bank into a savings account at the bank which was held in trust for us. She explained that we would earn “interest” from the bank, and that the money would be saved for us to use in the future. Never being the type of child who had issues with instant gratification, I jumped at the chance to accumulate interest from the bank. My mom would show us the interest that the bank paid out in the bank passbook and that motivated me to save more. Back then, the interest rate was a lot higher. Unfortunately, the 1 percent interest rates nowadays aren’t too exciting. Now, of course I did keep a portion of my money to buy basketball cards and snacks at the cafeteria. But, even as a young child, I always planned for the future and was fond of saving my money.

Investing
Wall_Street_Kid When I was about 11 years old, my father bought me a Nintendo game called Wall Street Kid. I was a nerd and loved that game, but I hid it when my friends came over as I would be teased mercilessly for playing that game. Not only did my father buy me an investing game, he invested in a mutual fund for my college education. They didn’t have 529 plans back in the day. The mutual fund did really well and my father showed me the statements with 20% to 40% growth and I was hooked. I continued to be interested in investing as I grew up, and signed up for the deferred compensation plan immediately after starting my first job and opened an IRA. While I learned the hard way that you can’t always expect 20% to 40% growth investing in stocks, I understood that investing was a great way to build wealth.

It would be great if schools would teach financial literacy to their students as it is such an important topic. However, ultimately, parents are the best teachers of how to manage your money. Children will always look up to their parents and model their behavior, good and bad. Even if you aren’t good with your money, don’t worry, you don’t necessarily need to be financially literate to teach your kids about money. If you’re interested in volunteering for an organization which teaches young people about money management and how business works, check out Junior Achievement. My sister volunteers for them and they send her to schools, with a lesson plan teaching financial literacy based on the age of the students. When she taught a classroom of kindergarten students, the lesson was to teach the difference between “Wants” and “Needs”. Of course, the little kids labeled television and candy as “Needs”! It’s never too early to teach children about financial literacy. Actually, I think there are many adults out there who still struggle with differentiating a “want” from a “need”.

April is Financial Literacy Awareness Month, and Shannon from The Heavy Purse has invited many wonderful personal finance bloggers to write about financial literacy. Please check out the excellent articles written by my wonderful fellow bloggers by clicking here.

Please share your journey to financial literacy in the comments.