Teach the financial facts of life

Many parents find that communicating with their children is difficult, and talking about money is no exception. Furthermore, many seem to be as reluctant to talk about personal finances as they are to talk about sex.

Yet perhaps one of the greatest gifts parents can give their children — often far greater than outright gifts of money, says certified financial planner Dennis Filangeri (www.myfrontdoor.com/ffs) — is to teach them financial life skills.

Learning to manage money is fundamental in today's complex society, and it can give children increased confidence and self-esteem. And this education benefits not only children, but parents as well.

For example, teaching your children about wisely managing money is one important avenue for passing along family values such as thrift and giving. For example, you might start out when they are young by requiring them to donate 5 percent or 10 percent of their allowance to charity.

A reluctance to teach the value of money and to discuss personal finances with your children can create real problems when it comes to estate planning. Estate planning experts say nothing breeds more animosity than keeping an estate plan secret. Families that have a history of discussing finances openly and teaching children the value of money will have much less difficulty communicating about the estate plan and making it a plan that works for all involved.

Another direct impact of the failure to teach children about money occurs when grown children return home to live because they haven't learned how to manage their own finances. Adult children living at home can have a significant financial impact on their parents, who may stop saving for their own retirement or make other financial sacrifices in order to handle the added financial burden.

Personal finance is seldom taught in school, so financial education generally falls on the parents. Here are some suggestions from certified financial planners for teaching children financial lessons:

* Start young, by age 4 to 5 when they can count and differentiate coins. As they grow older, allowances provide a good avenue for children to learn to save, spend and give to charity. Use envelopes or jars so that they can divide their money into savings, spending and charity. Explain shopping decisions you make at the grocery store. Let them make their own small financial mistakes, such as wasting allowance money on a poor purchase.

* As children grow up, include them in day-to-day household financial discussions. Junior doesn't need to know what you make exactly, but children should hear discussions, and perhaps even be consulted, about major financial decisions. This is especially true for decisions that affect the entire family, such as the purchase of a new home or car, or a family vacation. Include them in discussions that have a direct impact on them, such as those involving clothes or college. Inform them about financial sacrifices that might have to be made if a parent is laid off. Keeping finances a secret only breeds distrust and weakens communication in later years.

* Set a good example through your own money management, especially judicious use of credit cards and automated teller machines. Nearly 60 percent of the high school seniors in a survey by the Jump$tart Coalition for Personal Financial Literacy reported that they learn the most about managing money "at home from my family."

* Teach children the financial facts of life. Teach them about investing, for example, by having them actually invest in a stock or a mutual fund and tracking that stock or fund. Explain how investments grow over time. When they start earning money, open an individual retirement account for them and explain why they need to set aside money for retirement. Financial literacy is an ongoing education.

Zall, Bureaucratus columnist and a retired federal employee, is a freelance writer based in Silver Spring, Md. He specializes in taxes, investing, business and government workplace issues. He is a certified internal auditor and a registered investment adviser. He can be reached at miltzall@starpower.net.