How do people typically learn about personal finance and how to manage their money? Wonder of Compounding conducted a nation-wide survey and the results were not that surprising.
56% of respondents said no one taught them and they had to learn on their own. 21% learned personal finance topics from their parents. 13% took electives in high school and college that helped them learn about managing and investing money.
To be financially successful, you need to know the basics of money and investing. Just like learning US History, Algebra, and foreign language, you should learn how to save and invest. Financial knowledge supports better decision making and will make you more successful at reaching your financial goals. The earlier you start, the better.
When you become a teenager, you may begin to realize that your parents don’t know everything. And that’s okay! I came to this realization when I was a junior in high school. I was working on a difficult AP Chemistry problem and asked my dad, who taught chemistry at a public school for 25+ years, for help. I spent an hour and a half with him on just this one problem and he had no idea how to solve it. He didn’t want to admit defeat and was ready to call my cousin who was a scientist and studied chemistry in college. I had other homework to do so I did my best to answer the question with what I knew and moved onto the next homework assignment. In that moment, I realized that my father was human and other students in the class would not be reaching out to distant relatives for answers.
I bring up this story because parents love you and have your best interests in mind but sometimes they don’t know. They may be good at their jobs and providing for your family but as you see from the survey above, most people learn about personal finance by “winging it” or trial and error. Some are fortunate to figure things out while others just get by and do the best that they can.
Here’s a few questions to test your parents’ financial IQ to see if they have good money habits:
- Do you have a budget?
If so, can you show it to me?
A good budget should have money coming in from income and money going out for expenses.
- Do you have any credit card debt?
- Do you have an emergency fund? Just in case something happens, does the family have any money in savings that would cover expenses such as food, housing, utilities if you were to lose your job or have to leave the workplace for an extended period of time
- Do you invest?
- Do you just invest in a 401k plan or do you have an investment account? What do you invest in?
Parents with good financial habits should
- Have a budget or at the very least, do not spend more than they make each month.
- Have no credit card debt. If your parents use credit cards, they pay the full bill/balance at the end of the month.
- Have an emergency fund where they have at least 6 months of savings just in case something happens.
- Have basic knowledge of investing and invest in a 401k retirement plan and even better, have a brokerage account.
In 2017, T. Rowe Price surveyed parents and their kids about financial habits. 69% of parents feel uncomfortable talking about money with their children. It might not be an easy conversation at first but kids who talk to their parents about money are more likely to have a savings account and follow good financial habits.
If your parents don’t follow good financial money habits, it’s okay. Just be aware of this and do what you can to learn more about money and investing from others who know what they are doing. Personal finance, including saving and investing, is a skill that anyone can learn. The earlier you start, the more successful you will be.
