A real-world economics class that simulates financial life from high school graduation to retirement in the course of one academic school year would be a powerful course for pre-college kids. Unfortunately, schools do not do that. Economics classes in high school consist of balancing check books, learning about the stock market, and understanding the socio-economic environment of many societies. Parents must make a real-world approach toward teaching children about the debt-trap by blending social-studies, economics, and personal financial management into a hands-on educational format for their children.
Gross National Happiness
Children learn about gross domestic product, and other factors that effect the national economy in school. As a parent, you have to tie personal financial responsibility to what your child is learning in school so that he can make satisfying decisions as a money-earning adult. Consumerism is a by-product of the free-market. You can expose your child to the various means that companies are vying for his money through advertisements, social media, and social peer pressure. You child must learn to be satisfied with what he has before he can learn to avoid debt traps associated with consumerism, and that can be a very difficult concept to teach.
It’s great to be able to buy what you want, but there’s more to being able to buy what you want then whether or not you are able to afford it. What determines someones ability to afford something? Will your child understand that simply having a $75,000 a year job does not mean he can afford to buy a luxury car and a fancy home? Before venturing into all the long-term expenses of life and learning about the importance of savings, he needs to understand that a high income does not necessitate buying super nice things. He should learn to be happy with what he has so that he can learn to postpone purchases int he future.
Long Term Expenses
Why are so many politicians debating the future state of Social Security? That question is a powerful one to present to your child. Expendable income may depend deeply on how much money he has to save for his retirement. How much money will he need to survive after age 65? Ask him what he thinks he’ll be able to do at that age. What type of income does he want to have, and see if your child can come up with a savings estimate for that retirement figure. Schools and parents should guide children toward saving for retirement with very specific figures. Flipping the words,”be sure to save for retirement,” from your tongue to the attention sparse mind-trap of a teenager can be futile. Saying, “Unless you are able to save at least $5,000 a year, from the time you are 20 until retirement, you’ll be living in poverty or less by the time your are 67.”
Getting Real World Information
Children are another long term expense that your teenager should understand. You can teach your child real-world circumstances by having them assume certain situations such as having a child. Then, go beyond asking your child to “imagine” how difficult things may be in those situations by asking your child to call real agencies to inquire about costs. If you ask your child to assume having a child after high school, have them search for real jobs in the real world in local newspapers and employment agencies. Have them write resumes and cover letters to see if they can get those jobs. Then, have them answer the question, “Where will the baby be? I can’t watch the baby because I work. Where will the baby stay?” Direct your child to call local day-care facilities to inquire about costs. If your child learns that he’s can get a job making $8.00 per hour, and the local daycare agency costs around $5.00 per hour, how will he pay rent?
You children should be able to find apartments in local advertisements. Find potential rental situations so that the proposed job he found in the local wanted-ads pays the rent and utilities. Again, if your child is working that 40 hour a week job for $8.00 an hour and has to pay child care, what kind of rent can he afford?
Using Current Expenses
Understanding debt and interest is difficult for most people. Don’t be afraid to show your child some of the credit card offers you get in the mail. Ask him, “Do you understand what this letter is saying?” Let him feel as though you’re really trying to get help in understanding the offer, and that because he is learning so much in school, he might be able to help you. Give him a little homework assignment to find out how much a $1500 electric guitar might costs in the long term if he only paid the minimum payment with an interest rate of 14.9 percent. Most high school students learn this kind of information in algebra, and if he comes to you confused, tell him to get help from his math teacher.
You can initiate a credit system in your home for allowances. If your child earns a specific allowance each week, issue him a homemade credit card (or just tell him he can get stuff on credit). Use the same criterion a credit card would offer and ask him if he is interested in participating. You can let him know that he must use his allowance for certain things; however, if he desires to use credit, you will buy it for him, but that he will have to pay you back with interest. Once he realizes he’s paid more for certain items by getting them before saving for them, he may think twice before using credit.