These money tips will last your kids a lifetime

Kids know all about spending money. Spending comes naturally to them.

It’s everything else about money that they need to be taught.

I got a reminder of that last week during a chat with 30 students at South Shore Vocational Technical School in Hanover, Mass. My friend Todd Zahurak is a guidance counselor there and he recognized that while many of the students are mature enough to have real jobs, they have no real understanding of what to do with the rewards they get from working.

It’s no secret that schools do a lousy job educating children about money, and that in many families conversations about finances are even more taboo than talking about sex. And in 45 minutes of chatting with the students, I got a stark reminder that anyone entering the workplace and adulthood with no real understanding of money is going to learn important financial lessons the hard way.

Kids need to have discussions about saving and spending with parents, grandparents, and other trusted adults because they’re not going to hear it in the classroom. Here’s what they need to know to become responsible consumers, employees, and savers:

1. Money gives you choices:

The students recognized that there is always something to buy next, whether it’s a want or a need. But kids need to know that today’s purchases impact the ability to buy something else that in fact might be more important or valuable.

2. You can pay for a lot of things you can’t afford:

Many financial experts suggest asking “Can I afford it?” before putting something on a revolving credit account or installment plan. In today’s world, however, almost anything is “affordable” thanks to the creativity of lenders.

I asked the kids if any of them could afford to run up $1,000 on a credit card and all assumed they couldn’t do it. Then I asked how many could afford that debt if the minimum repayment was $10 a month, and every single one thought they could manage the debt.

The problem is that by paying the minimum, the debt becomes maximum. Their first $10 payment reduces the debt by about a dime, after interest is factored in. When faced with the choice of trading $10 bills for dimes, no one wanted to do it.

People need to apply that same scrutiny — and avoid the bad deal — whenever they are being encouraged to borrow money to pay for something beyond what they can afford out of pocket.

Understanding how debt works — and learning the real cost involved in paying for today’s purchases over time — goes a long way to making someone a smart consumer. The question young consumers must ask isn’t whether they can afford it, but whether they can afford to pay it off over time.