Why kids need to take personal finance classes in elementary school – Money Perception

If people are destined to inherit their parents’ attitudes toward money, how can they hold on to the good ones and get rid of the bad ones?

MarketWatch asked Gregg Murset, who has been a Certified Financial Planner (CFP) for 20 years and who specializes in educating children so they make smart money decisions, what he recommends when it comes to changing spending patterns from generation to generation. Murset, who lives in Phoenix, was named the National Financial Educators Council’s Financial Education Instructor of the Year in 2014. He also works with teachers and school supervisors in Arizona to help improve personal finance education for students.

In addition to his work as a CFP, Murset runs a website called busykids.com that parents and their kids can use together. When kids do chores, parents can pay them on the site, which costs $12 a year per family. When parents want to pay their kids for chores, money is moved from their checking accounts over to the kids, who can either spend it (via gift card), give it to charity, or invest it. “It’s a kid’s first job with direct deposit,” he says. Parents can also give kids who work extra hard a bonus.

“I think if children learn at an early age to make good, sound financial decisions they will likely be frugal because they understand the ramifications,” Murset said. But, he added that “extreme frugality” is counterproductive. “If you’re too tight, you can miss opportunities with friends and family that are meaningful just to save a few more dollars that you likely aren’t going to spend anyway.”

It brings to mind Oscar Wilde’s famous quote, “A cynic is a man who knows the price of everything, and the value of nothing.”

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Murset adds that society often blames young adults for not having enough savings — especially when they spend more than they have — but that it’s more a reflection on their parents.

Case in point: The average American couple only has $5,000 saved for retirement, and nearly half of Americans can’t afford a $400 emergency.

“There’s a circle of dumbness with people passing bad financial habits from generation to generation,” he says.

That said, fewer people have extra money to save. The U.S. middle class has shrunk for over four decades, according to a Pew Research Center analysis of government data. Some 61% of adults were middle-income in 1971, and that number has gone down every decade since; 50% were middle class in 2015. And the number of “lowest-income” adults has risen in that time from 16% to 20%.

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Here are some ways parents can raise children who end up more financially secure than themselves:

1. Teach your children a strong work ethic

He recommends two strategies to break bad inter-generational financial habits. “If you can plant two things into kids early on, they’ll be successful,” he said. No. 1: “A work ethic. It’s the most important thing a parent can give a kid.” He suggests paying children for the work that they do. And No. 2: “Get them out of the house and to never come back to live with you.”

One-in-nine baby boomer parents said their adult children returned home within the last year. And of those parents, more than half said they were less happy after the return of their “boomerang kids,” and more than three-quarters said they took on higher expenses.

2. Help your children have experiences with money

If a child buys things with money they earn, they’ll likely learn from it. “Experience comes from poor judgment, and making bad decisions at 11 is better than when they’re an adult. If they save for a month to buy a toy that breaks three days later, they’ll learn from that,” he says.

This father clearly agrees: His 10-year-old daughter broke a $1,000 TV and he made her help pay to replace it. He charged her $250, which came from a freezing of her $5 allowance for six weeks “plus a combination of the contents of her piggy bank ($60) and her savings account (roughly $170 in the bank from gifts from family).”

3. Get their elementary school to teach personal finance

Children learn about pennies, nickels and dimes in first grade, but then hear nothing else about money until high school, Murset says. “High school is way too late to teach money lessons. Kids already have habits. It needs to be taught in elementary school,” he says.

And only 17 states even teach it in high school, he points out. Children should learn the basics in grade school: about compound interest, saving, and investments.

He has some novel suggestions on how to start that process. “Instead of watching Netflix, they can earn some money and buy fractional shares of Netflix stockNFLX, +0.67%  . Then kids understand what Netflix really is.” Children should also be taught the value of a dollar. “If you tell your child that piano lessons cost $150 a month and then show them how you pay the teacher on Venmo, it becomes a teaching moment.”