Jane Mepham the author is the Principal Advisor at Elgon Financial Advisors (EFA). EFA is a registered investment advisor in the state of Texas, serving successful foreign-born individuals/families nationwide. To continue being a part of the conversation on financial issues that affect foreign-born individuals/families subscribe to Elgon’s blog posts by email here.
April is the National Financial Literacy Month in United States. The goal is to raise awareness on the importance of financial literacy. I think of it as the month to teach all citizens and residents financial skills, giving them a good relationship with their money.
The Jump$start coalition started promoting April, in the 2000 as the Financial Literacy youth Month. In 2004 the Senate gave the program a big push by passing a resolution that made April the National Financial Literacy Month. This meant that the government recognized how critical having financial skills are.
Many studies show that people need guidance in handling financial matters and making smart money choices. They need help to be able to balance money decisions like saving, investing, spending and even where to invest and spend the money.
Millennials and Money
A majority of Millennials, or those around age 27 to 41 (depending on the data source), are very unsatisfied with their current financial situation. 34% are unhappy but they may not have the tools to change the situation. Of those that have an annual household income above $75,000, 34% are concerned they may not be able to repay their student loans.
Another statistic from the same study shows that this group has the lowest level of financial literacy of all demographics. Only 24% demonstrated a basic financial knowledge. This are some of the prime earning years, so critical and crucial to those that are looking to become financially independent.
According to this Bloomberg article, millennials are the most educated generation in history but with various distributions across social-economic groups.
This begs the question what happened during the crucial early school years on financial literacy studies? Were basic financial skills not taught or were the students absent that day?
Until schools do more with this, the parents have to step up and introduce these concepts to kids when they are still young. They need to make money a part of everyday conversation.
If this applies to you, be creative, make it fun, use every teachable moment available. More than anything else make it count for something, so you can get the kids 100% vested in the idea, allowing them to want to know more as they grow older.
Introducing the Cost Sharing Plan
Looking back, I’m very lucky to have grown up in a family where money was a part of everyday conversation. My parent’s philosophy was and still is “If you can’t manage one dollar, you can’t manage a million”. In other words, the amount of money you have doesn’t matter, if you don’t know how to budget it. How you use what you have is what counts.
As part of this education, my father came up with an idea he called “The Cost Sharing Plan”, that forced us kids to be completely immersed in the idea of money. It forced us to learn about where money comes from, to differentiate needs and wants and the importance of working hard. This is how the plan worked.
My parents would take care of all the necessities, which included food, shelter, clothing, school tuition etc. They ensured that we were comfortable, without being extravagant. You have to decide as a family what makes sense for your specific situation.
With the basics out of the way, we could now pick what I’ll call other projects which required money, but were not considered needs.
We had a lot of leeway here, and we all managed to do a lot. We had to know exactly when we required the money, how much we needed and finally we had to come up with half of the money or some big percentage of it before the due date.
It also meant having to do chores to get paid, and as we grew older, being entrepreneurial enough to go out and actually earn money. Some people might argue that making kids ‘fed for themselves’ this way is not ideal. You have to decide if it works for your family or not, but keep the end goal in mind.
Some of the things I recall doing under this plan included, paying for certification to become a lawn tennis instructor, taking extra school/church trips, having a little more pocket money for school outings among other things. By the time I got to college, I knew and I had no issues coming up with some of what I would need to get through my program. It’s probably one of the best ways I have found to combat the entitled mentality we see today.
Financial Lessons Learned
By adopting this method, they got us started on the basics of finances and sparked the desire to learn more about how money works. We learned to have a healthy relationship with money. Looking back the following is what we we gained from that experience.
1.) We learned how to plan from an early age.
2.) We learned how to distinguish between needs and wants.
3.) We learned how to budget and prioritize money items.
4.) We learned the value of hard work and the reward of earning money.
More than anything else we learnt to be patient where money was concerned and learned to wait for things we wanted, instead of going into debt. We never took anything for granted that cost money.
Looking back, I credit this early money lessons with my strong desire today to want to help other people with their finances.
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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, investment advisory services or legal advice. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Jane Mepham and all rights are reserved. Read the full disclaimer here.
To round out the Financial Literacy Month – here are my top lessons from the “Millionaire Next Door.” Anybody can apply these lessons to their lives.
April is financial literacy month – it’s a great time to teach kids how money works. One method is to use the “cost sharing plan”. This is how my parents used the plan with us, and considering that I’m using it with my kids today, I have to admit it worked!