Learning practical money skills starts with giving your kids the tools and showing them how to use them.
Financial education is full of concepts and ideas that will help you be successful but most people just need some practical money skills to help them get out from under the paycheck-to-paycheck curse.
These practical money lessons are powerful tools that will give your kids a head start on life.
Today’s scholarship essay is by Eric Martinez, a student at the University of Central Florida. He shares the three tools his parents used to teach him practical money skills.
Check out Eric’s story and please share on social media. The most-shared essay on how parents can teach their kids about money will win one of our two $500 personal finance scholarships, announced August 31st!
How My Parents Taught Me Practical Money Skills
I was born a first-generation American to immigrant parents in a family of four kids. My father is a mechanic and my mother helps support the family by mending clothes at night while taking care of the family by day.
My parents knew they would never be rich but, like most parents, they dreamed that their kids would be financially better off than they were.
Did I say mention my father was a mechanic…ok, he was a super-mechanic. He loved tinkering on anything he could get his hands on and had a tool for just about every job. His love of fixing things colored every thought and he was always trying to relate being a mechanic to other parts of life to teach us something.
That’s how I learned three powerful and practical money lessons and the tools every kid should have as they go out on their own.
Practical Money Lessons Everyone Should Learn
My father’s point of view was that everyone shares basic needs and things they have to do in life. What separates people that struggle from those that find success are the tools they use and the skill they develop using those tools.
He reasoned that he could probably change a car’s oil with his hands but it would take him forever and probably wouldn’t be the best job. Having the necessary tools and knowing how to use them meant he could do it much faster than most others.
It’s no different when it comes to being financially successful. You can struggle through life, living paycheck-to-paycheck or you can find out what tools you need and develop the practical money skills that will help you succeed.
The first practical money skill my parents taught me was how to create a budget. My parents didn’t make a lot of money but they always seemed to have a little left over each month for savings.
They saved up enough in fact that they were able to help pay for community college for my two sisters. They did this by keeping a strict budget and understanding that if we added a new expense on month, it meant spending less on something else to make it all balance out.
That meant we didn’t have cable TV for most of my life growing up and we used the internet at the library until only just a few years ago. This was absolutely unbelievable for many of my friends but my parents taught me there are a lot of expenses people take for granted that aren’t necessarily must-have bills.
The second money tool my parents made sure to emphasize was the good use of credit. Since we didn’t live above our means, my parents didn’t use credit cards much but they didn’t want us growing up not understanding what credit was.
One of the few times I remember seeing my father truly disappointed and unhappy was when he and my mother were trying to get a loan to buy a home. They had always dreamed of owning a home and I think it was a way for my father to feel successful in life.
No matter how many banks they went to, nobody would approve my parents for a mortgage. The problem was they had never used credit so had no credit history.
That was when my mother started reading about credit scores and factors in getting a loan. We kids were already too old for nighttime stories before bed but we got a summary lesson in debt and credit every night for months. My parents figured it was too late for them to have good credit but they could start us off right.
The final money skill my parents taught me is the power of investing. They opened a 529 educational savings account for my sisters and I about ten years ago. They deposited a couple hundred dollars in the account ever few months.
It wasn’t much but it was a big deal every three months when we would all sit down and look at the investment account. They would show us the funds in which they invested and we would look for the return on the funds.
They would then make us figure out how much would be in the account if they kept depositing the same amount every three months for ten years and got the same return each year. They would then point out how much we would have compared to how much they put in. I was always amazed at getting free money from the earnings on the account.
Games to Teach Practical Money Skills
My parents used two games to teach us practical money skills, two fun activities that really helped practice the concepts.
The first game we would play was a budget problem solver. Every month when my father went to balance the family budget, he would quiz us for 15 minutes. He first listed out the actual expenses and income for the family. Then he would quiz us on how to make room for new expenses. It was kind of like a board game where you pick up a card.
He would say something like, “Ok, Geena has to go to the dentist. That’s a $50 bill.” We would then have to decide to remove an expense to pay the new $50 expense. My father would then ask us why we picked that expense to remove. If we couldn’t find enough expenses to drop to cover the new bill, we could spread the cost out over a few months.
It was a great tool to teach us problem solving and how to make a budget even out even in an emergency.
My parents wanted us to understand how to use credit so they gave us expired credit cards. They gave us allowances for chores and kept a running count of how much we earned. They made us ‘charge’ some of our living expenses like our share of the groceries and would write out a credit card bill each month.
We had the option to pay the minimum amount but the cards cost us interest of 2% a month. It didn’t take long to realize that keeping a balance on the cards was a very expensive decision.
I’m grateful for the tools my parents gave me to learn practical money skills. I’m confident that I can use those tools to be successful in my own financial life.
I want to thank Eric for his story of the tools you can use to teach your kids practical money skills and good financial habits. Be sure to support Eric by sharing the article through social media and check in August for the winner of the personal finance scholarship.