Think you’re smart about your money? Think again!
SALT LAKE CITY — A new report out says that Americans are too arrogant about their financial knowledge.
Nearly three-quarters of American adults gave themselves a “high” rating regarding how much they know about general finance topics like diversification, compound interest, and inflation, according to the report from the FINRA Investor Education Foundation.
The test results told a different story. Only 40% of the participants given the six question quiz were able to answer at least 4/6 questions correctly, and just 7% answered all of the questions correct.
The biggest slip-ups came when the participants were asked about how compound interest affected their money.
Compound interest is something that billionaire investor Warren Buffet says is part of the secret to his wealth.
“My wealth has come from a combination of living in America, some lucky genes, and compound interest.”
What about money and your kids?
You’ve said it plenty of times to your kids, we’re sure: “Money doesn’t grow on trees,” but that shouldn’t be the only money advice you should be giving your kids.
So what should you teach your kids in a way that sticks to help them become financially independent and smart with their money?
Business reporter Nicole Spector broke down a few good lessons with personal finance expert Rachel Cruze in an article from NBC News. Those lessons include:
Money doesn’t grow on trees
If that’s what you’ve been saying, you’ve already got the first step down. Cruze says it’s important to teach your kids that money doesn’t just come from mom and dad’s wallet, but that it requires work.
“When you work, you get paid. When you don’t, you don’t get paid,” she emphasized.
Helping your children understand the relationship between work and money is something that helps them understand the value of a hard-earned dollar, Cruze said.
Give, save, spend
After making that connection between work and money, the next step, according to Cruze, is to help them set up worthwhile habits in their relationship with money.
Cruze suggests a hierarchy in the way kids can be responsible with their money: giving, saving and spending.
Giving your kids a safe place to learn and grow is key to helping them succeed in the future, she adds. Parents should show kids how their dollar can help others through giving, or how sad it is when they run out; according to Cruze, those experiences can be great teaching opportunities.
Make them a part of the discussion
Demystifying the green paper with dead presidents on them is something that can be immensely helpful in shaping the way that kids will think about money in the future, Cruze said. Her advice: involve them in discussions about the family budget. Have them help search for coupons. Help them understand that there is more to money than the little piece of plastic in your wallet. In Cruze’s view, having experiences can be more powerful than having a lecture.
Hear more about this discussion and what you can do to help your kids learn about money, along with prolonging the life of your car on the Dave and Dujanovic podcast.
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