You might think that your child will learn everything they need to know about money at school. Please think again. While your curriculum might list “economics” in the high school menu of offerings, that class rarely encompasses personal finance.
Even if it did, the lessons would likely come too late. Research indicates that children establish their economic habits by age seven. That’s only one reason you should be teaching your children financial literacy — here are five more.
1. Emergencies Happen
What would you do if the clutch went out on your car, necessitating a pricey repair? Would you turn to your credit card? Before you do, please consider the impact such behavior might have on your toddler’s future spending habits.
Experts recommend socking away an emergency fund of three to six month’s worth of living expenses to handle events like unexpected car repairs or a temporary loss of employment. How much you save depends largely on what you earn.
If you’re making minimum wage, a single large expense such as your landlord selling and forcing an unanticipated move could blow through your entire savings, leaving you with nothing left the next time trouble chooses to strike. You might consider putting away more if you can. Sock away unexpected windfalls, like that last remaining bit of your stimulus payment if you still have it.
2. So Does the Unexpected
If the events of the past year taught people anything, they should expect the unexpected. While the job market has recovered somewhat, employment postings remain 10% to 20% lower than in January of 2020. Even then, few positions paid enough money to support an individual, let alone a household.
If you were one of the many who lost work, you might find yourself reeling from economic uncertainty, even with the increased federal unemployment payments. Even if you held onto your post, the insecurity could prompt you to take action.
Consider starting a side hustle that you love, even if you don’t need the money right now. You teach several valuable economics lessons by doing so. One is that work doesn’t have to be drudgery — you can earn by doing something you enjoy.
The other is establishing a secondary income stream you can draw upon if things go downhill. If you work hard, you may eventually decide to quit your day job. Even if you never transform your Etsy shop into your full-time business, you’ll have something to fall back on if widespread economic uncertainty strikes again.
3. Schools Don’t Teach About Insurance
If schools taught the reality of medical debt, the health care system in the United States would probably look quite different. However, they don’t — so it’s up to you as a parent to emphasize how important it is to get covered.
You probably won’t have too much trouble teaching your child about car insurance when they reach an appropriate age. However, you want to teach your kids the value of other types of coverage. You should discuss the necessity of life insurance for young parents and renter’s insurance before they fly the nest.
4. They Don’t Cover Much on Taxes
One principal reason many small businesses fail is that they don’t understand their payroll tax obligations. Furthermore, the rise of the gig economy makes it more vital than ever for those classified as independent contractors to master ways to save on their tax bill.
Some local libraries and community centers offer basic courses on tax literacy for relatively little. Why not consider taking such a class as a family? While you might spend a little for the knowledge, it could potentially put hundreds of dollars back in your pocket and out of Uncle Sam’s.
5. Money Shouldn’t Matter — But It Does
How many times have you preached, “Money doesn’t buy happiness.” Please reconsider your words if you do. Whoever invented that cliché never knew the soul-crushing stress that living too long with too little can cause. It kills.
Like it or not, we live in a capitalistic society. Without a minimal amount of the green stuff, it’s like you don’t exist or matter. For example, those without a residential mailing address can’t even apply for a P.O. Box to get their mail delivered.
Furthermore, a lack of money can strain the best romantic relationship. Financial troubles remain one of the leading causes of divorce, not far behind infidelity and domestic abuse.
It’s even challenging to get the basics sometimes. It costs over $1,000 a month to rent an apartment anywhere in the U.S. Working 40 hours a week at minimum wage is barely enough to afford even that monthly expense — and only if you exclude any other necessities like food, electricity, insurance, internet and heat. Once you factor in health care costs, you have to earn at least $25 an hour or more to have a realistic chance at a comfortable middle-class lifestyle.
Therefore, instilling healthy money attitudes young is possibly the most vital life skill you can impart to your children. By teaching them to respect their finances, not fear them, you have the best chance at setting them up for future success.
Please Teach Your Children Financial Literacy for These 5 Reasons
Please don’t rely on your child’s school to teach personal economics foundations — any lessons they provide will come too late. Instead, set them up for future comfort by teaching financial literacy from the earliest possible age.