“It’s not what you make, but what you save.” Allow me to quote my father again, even though a reader took exception to a previous father quote in the column reviewing Cohen’s FDR book, “Nothing to Fear” (Penguin Books, 2009). Last month I wrote, “… a childhood memory of my father talking about FDR as the greatest President during his lifetime.“ Reader Dan L. responded, “You speak as if since your father worshipped FDR, he was a god. Truth is far from your father’s assessment.“
While most children may not need the financial literacy skills to manage the United States out of a depression (as I credit FDR), they will need a set of financial literacy skills to achieve a lifetime of economic stability. Lessons critical for a child’s financial literacy include:
1. Financial security is 80 percent savings and 20 percent investing: Children learn many lessons from their parents. None was more valuable to me than my father’s lesson on savings. My children frequently remind me of their grandfather’s lesson to save. From my financial reading and hours of discussion with longtime friend and financial consultant Jim Brogan, I learned the relationship between saving and investing and how to conservatively manage that 20 percent of financial security.
2. Earning requires much more effort than spending: At an early age, children need to connect earning and spending and learn that working and earning requires a committed sustained effort. For example, if parents pay children $5 an hour for household chores, children learn the work commitment of $5. (Children also need to learn that they should not expect pay for everything they do.) A child’s first hourly wage offers parents an opportunity for an additional lesson on the minimum wage. Short-term financial goals include budgeting for daily expenses and planning savings for long-term goals.
3. Financial planning begins with a child’s first dollar bill: A child’s first dollar raises the question of what to do with it, a child’s first financial plan. That plan needs to include long-term goals, short-term goals and a plan to save. Many parents encourage savings by duplicating children’s long-term savings.
4. Credit cards carry a warning label: No financial lesson is more important to a child that the use and abuse of credit cards. Reality is that financial survival today, necessitated by online purchasing and a responsible financial history, requires a credit card.
But credit card interest and missing a payment can destroy a financial plan. A necessary lesson for children is that 20 percent interest significantly increases the purchase cost and a credit card late payment can cost $50 or more. Even more costly than interest and late payment is the consequence on future financial transactions.
5. The stock market carries risks and rewards: Children’s interest and fascination with money produces a natural curiosity in the stock market, and an important understanding of the 20 percent investing part of financial stability. After explaining to children stocks as part ownership in a company, encourage children to follow a stock of a company that interests them, such as Disney or Apple.
An understanding of the stock market also needs to include differentiating between speculative risk and long-term conservative investing. Tracking a conservative collection of stocks, a mutual fund such as a Standard and Poor 500 (S&P 500), which represents a broad cross section and an overview of the American economy, represents conservative investing.
As a writer, my most valuable assets are readers and reader feedback. Dan L. and I had an interesting email exchange of FRD’s role in America’s economic recovery. Dan wrote, “ … the FDR economy never really recovered till the build up for the war when the unemployment rate was finally reduced.” We were in agreement on the atrocity of FDR’s internment of Japanese Americans following the attack on Pearl Harbor.
Lessons of history, lessons of financial literacy, so many teachable opportunities.
Dr. Joe Giampalmi, an assistant professor at Rowan University’s Department of Writing Arts, has been teaching writing for 52 years. Author of five books and dozens of educational articles for national magazines, he has been writing this semi-monthly column since 1985 and has published more than 600 columns. Some past columns are available at DelcoNewsNetwork.com. Giampalmi regularly presents writing workshops for schools and businesses. Please address questions and comments to Giampalmi@Rowan.edu.
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