Commentary

Far too many parents neglect to teach their children how to handle money.

My parents didn’t teach me very much about how to intelligently earn, invest, save, or spend money, perhaps because they never had much of it. Consequently, I grew up without much knowledge about how to manage personal finances. The longer you procrastinate in absorbing basic financial literacy, the harder it is to gain wisdom and practice how to make money work for you.

If parents fail to pass down knowledge regarding the prudent handling of money, youngsters usually have to learn through the school of hard knocks. I know that that was the way I gradually learned how to manage my finances. However, those who grow up with minimal financial resources can at least appreciate the value of a dollar.

If parents have trouble explaining finances, the schools could play a role in teaching young people the basics of financial literacy, especially in high school. This would enable students to gain useful lessons regarding economics and how money works as they enter college or the workforce.

Here is some advice for young folks and older adults on how to successfully manage money.

Practical Advice

First, in many families, children receive an allowance each week or month depending on how well they carry out household chores or yard chores. Learning to earn money at a young age introduces a youngster to the value of earning money through hard work. Parents can guide their children on how to save what they earn to purchase something of value at a later date. Earning some interest at a bank could be better than savings placed in a jar.

Second, if a youngster grows up with a work ethic, he or she will realize that hard work is not only a reward in itself, but also a way to bring in necessary funds to make life more comfortable. Many teens join in on fundraisers, mow lawns, have a paper route, or even secure a summer job to earn some cash. Learning to maintain a balance between saving and spending often comes through trial and error, which can build character.

Third, it’s never too early for young folks to learn the value of deferred gratification. In other words, making a habit of purchasing what you need rather than what you want is a smart idea. We all need the basics of clothing, food, and shelter, but these basics do not have to be exorbitant.

Fourth, when teenagers move into their 20s and 30s, the basics of finance should have been consumed and digested over and over again. Obviously, there will be times in our lives when we incur some debt, such as auto loans, business loans, mortgages, or student loans. It’s important to remember that it doesn’t pay to move into the danger zone of debt through excessive credit card spending or loans. If you do, it’s very difficult to emerge from the debt hole you dig and to pay your yearly taxes.

Remember, credit card spending and loans must be paid off in a timely manner for your credit rating to remain in excellent or good standing on quarterly credit reports. If payments are late, interest on the debts can accumulate. If debts outpace your earnings, it’s past time to buckle down and reduce spending through a disciplined budget and perhaps snag another job.

Fifth, as financial knowledge increases, an individual can research methods to earn more and invest wisely for the future. As we get older, basic needs can expand into further education, better health care insurance, and vacations. In order to pay for these needs, investing and saving for the long term are critical. What is needed is often greater than one’s bank statement, pension, or Social Security checks.

Sixth, investing is a form of saving for the future. Instead of waiting until you are in your 40s or 50s to start investing, begin in your 20s or 30s to increase future income. It doesn’t hurt to work with a professional money management firm that charges reasonable fees and does well when the client does well. Reputable firms can help you build a portfolio of bonds and stocks that invest in the economy. Some firms can also assist with writing an estate or will for your beneficiaries.

Seventh, one of the largest hurdles to overcome on the path to being debt-free is paying off the real estate mortgage. Once that is taken care of, one can invest and save more for future needs. If you spend primarily on what you need, you can spend money on what you crave from time to time, based on a healthy nest egg.

Finally, stay out of debt as much as possible and pay off debts faster than necessary. Earn as much as you can during your prime earning years to pay for retirement. Save 10 percent of your paycheck for the future and give some to a worthy charity. The balance can pay for your needs and any emergency expenses that might pop up. Good luck with your finances!