Permanent Value

Week in Review 2/10/14

Bruce Doole
February 11th, 2014

Teaching Financial Literacy to Your Kids

Some kids excel in the arts, and others display athleticism from an early age, but there are plenty of talents that don’t come naturally to youngsters. While someone may have tendencies that make it easier for them to manage money, personal finance is a skill we all have to learn.

“It’s not something that people get intuitively — we didn’t evolve to interact with banks and stock markets,” said Joe Kable, a psychology professor who researches decision-making and behavioral neuroscience at the University of Pennsylvania. “It’s not like we come with the right set of intuitions that make beneficial decisions in the financial realm.”

Still, some people understand personal finance better than others. It’s something we’ve all noticed through everyday interactions, like how one friend can’t seem to pass up a shopping spree, despite having a load of credit card debt , or how another seems hard-wired to save as much as possible. Such behaviors may exhibit themselves early on, but your child’s desire for instant gratification doesn’t mean he will be in a financial mess once he’s an adult.

What to look for

Sam Renick, the creator of the “It’s a Habit” company, has focused on teaching kids financial responsibility for the past 12 years, and he emphasizes the importance of language when measuring a child’s understanding of financial concepts.

“Start being alert, taking note of how your kids are talking about money,” Renick said. “Is it ‘buy buy buy, spend spend spend, gimme gimme gimme’? Monitor what they’re asking for all the time.”

Pay attention to what you’re saying, too. If you only talk about what money can give you now, rather than talking about it as a long-term tool, your kids will pick up on that concept, Renick said.

What to do

Instilling the value of earning money, having kids participate in their financial future through something like keeping a piggy bank, offering incentives for them to save — these are all ways you can influence your child’s future financial tendencies, no matter what they seem predisposed to.

Everyone has a different approach to raising their children, so the most important thing to focus on is starting early. Kable studies the decision-making qualities of children around 4 years old, and Renick mostly works with 4- to 10-year-olds.

“I think it’s a very difficult job for parents, especially in the environment we have created, with debit cards, credit cards, ATMs everywhere,” Renick said. “The great news is there’s never been more financial materials and resources available.”

Let’s not forget that being an adult doesn’t translate into personal finance expertise. How you, or your kids, understand foreign concepts like retirement planning and interest rates is tied to our social knowledge and what you learn from others, Kable said. With that in mind, do what you can to educate yourself and your family members.

“Can we predict who is going to make what financial decisions? There’s certainly tendencies that make it easier or harder for some people, depending on their personalities,” Kable said. “You can educate people, and that will shift them a little bit.”

Education may not be universally successful, but there’s no reason to give up on a kid just because she struggles to work for a delayed reward.

“Every day we have new opportunities,” Renick said. “You can take corrective actions.”

This Week’s Economic Data

  • Unemployment fell to 6.6% in January, the lowest level since October 2008.
  • Factory orders fell 1.5% in December. The drop was slightly less than was widely expected.
  • The Institute for Supply Management’s services index rose to 54% in January, matching Wall Street expectations.
  • Productivity grew at a 3.2% annual rate in the fourth quarter, following an upwardly revised 3.6% in the third quarter.
  • Weekly jobless claims fell by 20,000 to 331,000.
  • The U.S trade deficit climbed 12% in December, as the U.S. sold fewer heavy duty goods to other countries.

Source: Christine DiGangi, Market Watch/ Ivy Funds