Children are taught early on to respect their parents, but when it comes to handling money matters, kids may be better off taking notes from someone other than mom and dad. Over half (51 percent) of parents with children between the ages of 6 and 17 say they do not understand financial matters very well, according to a new report. Only 38 percent of parents pay off their credit cards completely each month, and fewer than half (45 percent) stick to a budget on any consistent basis.
The study, entitled â€œParents, Youth & Money 2001,â€? sponsored by the American Education Savings Council (ASEC) and the Employee Benefit Research Institute (EBRI) and conducted by Mathew Greenwald & Associates, Inc., was underwritten by the TIAA-CREF Institute. It is a follow-up to their 1999 study, which found that 94 percent of students between the ages of 16 and 22 say their parents are their primary resource for financial information. This wave aimed to uncover whether parents are properly equipped to serve as their kids' financial advisors.
â€œParents must get educated about money management if they want to pass on effective financial lessons and skills to their children,â€? says Don Blandin, president of ASEC. â€œToo many students are graduating from high school with no understanding of the basic principles of earning, saving, budgeting, debt, and investing.â€?
Thirty-nine percent of parents stick to a budget only some of the time, 12 percent rarely stick to a budget, and 5 percent never do, according to the report. And when it comes to handling plastic, most parents can't hack it: Half (49 percent) say they pay more than the minimum due each month, but still leave a balance, and an additional 6 percent pay only the minimum. Talk about mixed messages: While 95 percent of parents have encouraged their child to save money, just 68 percent say that, for themselves, saving money regularly is very important. More than a quarter of them (27 percent) say that saving is only somewhat important, and 5 percent say it isn't important at all.
Even so, most parents view themselves as good financial role models â€” 25 percent of them say they do an excellent job of managing their own money, and 57 percent say they do a good job. Ironically, of those who admit to doing only a fair (16 percent) or poor (1 percent) job with their own bankbooks, 92 percent consider themselves effective in giving their kids advice.
But there is an obvious mismatch between what parents think is good advice and the real deal. When parents are asked where they would advise their child to invest up to $5,000 for some long-term savings objective, like college, a third of them say they'd suggest shorter-term vehicles: 17 percent name certificates of deposit, 12 percent suggest savings accounts, and 4 percent say savings bonds. All are considered by most financial planners to be less successful than stocks, mutual funds, or IRAs for down-the-road goals.
While they may not be very good at it, almost all parents agree that it is in their job description to teach their kids about the all-mighty dollar. Thirty-eight percent of them believe they should be solely responsible for this task, but 61 percent say that parents and schools should share responsibility. Since only 21 percent of students say they've ever taken a personal finance course in school, however, the bulk of the burden falls on parental shoulders.
To their credit, some parents have some positive behavior patterns worth emulating. Eighty-three percent say they compare prices when making purchases most of the time, and 86 percent say they've taught their child to do the same. Seventy-two percent say they are comfortable with dealing with large financial organizations most of the time, and 68 percent track the money they spend most of the time.
But there is still much more to be done. Almost half of all parents (48 percent) say they have not taught their child how to make a budget, and 39 percent admit they have never involved their child in discussions about family financial matters or taught their offspring how to set financial goals. Eighty-eight percent of them have not exposed their child to financial software, 80 percent have not taught their child to use the Internet to obtain financial information, and 69 percent have not obtained educational materials to help teach their child.
Since almost half (49 percent) of parents say they use materials provided by their employer to help manage their household's finances, companies may be able to help parents teach the financial facts of life by providing them with additional youth-targeted information. Financial advisors and service companies could also help better prepare parents for this inevitable heart-to-heart.