Dad: Are you teaching children responsible money management?
Editor's note: The following column was provided by Cary Siegel, a retired business executive and author.
As a father of five teenagers, it feels like all I do every day is teach my kids lessons. These lessons span a wide range of topics - from "how to treat others," to "being a team player," to "exude confidence not cockiness." It has taken me years to determine the most important lessons pertaining to personal money management, which is one of the most important skills they need to learn.
With all the issues facing teenagers today, why do I say this? Three reasons:
1. Schools teach them absolutely nothing about personal money management.
2. The example set by our society is to spend more than they make (in other words, debt is good).
3. It is one of the most important skills they need to take into adulthood.
It is imperative to set the right example for your children when it comes to money management. In my book, "Why Didn't They Teach Me This in School? 99 Personal Money Management Principles to Live By," I discuss these lessons in a simple, memorable manner.
Here are what I consider every dad's three "must teach" principles:
Always live below your means. If you want to manage your money successfully, this is one of the most important principles to follow. And, this is where most Americans have gone, and will continue to go, wrong. People want to have everything ... now. They just can't wait until they can afford it. But you must wait until you can afford something before you buy it. If you make a habit of purchasing things you can't afford, you will quickly begin a downward spiral that will continue until you go bankrupt. Plus, you'll enjoy your purchase all the more.
If you always live below your means, you will always have extra money to save and invest. Over the years, your money will grow and you will find yourself with significant financial security. Keep in mind that living below your means doesn't mean living badly. It means you prioritize your spending and focus on what is most important to you. It means "living smartly."
Develop a written budget and evaluate it every single month. People think this is painful but it's actually quite simple. And it must be done. You can't manage something you're not tracking. And the concept is clear - more money must come in every month than goes out! I have a simple budgeting process that takes a half-hour every month and allows for the three most important parts to be completed: developing, tracking and analyzing. The analysis part is so important. Where did you spend too much? Where didn't you spend as much? What else do you need to include next month? What is in your emergency fund? What are your financial goals for the next 12 months? And remember, you will always have tradeoffs!
Save and invest 50 percent of every salary increase. This is an easy principle that requires a little discipline. Think about it; you were living on your old salary before you got a raise. You can have the best of both worlds. You're still going to live better, but why not invest some for your future? Most people don't do this because they get behind in the first place. They start by spending more money than they make in the first place. You just can't do that. If you employ this principle, you will be shocked at how well you do financially over time.
Ninety-five percent of adults don't follow these principles because they've been told that debt is OK and they're trying to keep up with the Joneses (who, by the way, are bankrupt)! I've told my teenagers (and my nephews who are in their 20s), if they always follow these three basic principles, they will become extremely adept at personal money management.
Take the time to talk with your children about all the issues that confront them. Especially, take the time to discuss the issue of personal money management. From experience, we all know that it is an issue that has caused much pain to our generation.