Back-to-school is about backpacks, lunchboxes and money skills

August 31, 2011

The following is a guest piece by Dan Greenshields, CFA, and President of ING DIRECT Investing, a subsidiary of ING Bank, fsb. The opinions expressed are his own.

Parents everywhere are preparing to send their kids back to school. It’s time for new backpacks, lunchboxes, pens, pencils, clothes and electronics.

Back-to-school season also provides a perfect opportunity for parents to pass along to their children the basics of financial literacy. In fact, more than ever, kids may actually be eager for some lessons in saving, investing and budgets.

After all, the media is saturated with coverage of the global markets’ ups and downs. Most young people have probably heard something about the volatility in the economy over the summer and they’ve likely wondered what’s causing it. That curiosity primes them for real-world lessons in personal finance — a topic that largely goes uncovered in schools.

Back-to-school shopping brings a flood of simple questions that can serve as teaching opportunities on budgeting. For instance: How many colored pencils do you really need?  What are the different types and prices of pencils? Is there a sale, discount or promotion at one store or another on the same pencil?

My wife and I have two kids of our own and we can attest to the fact that the list of  “necessary” school supplies seems to get longer each year. Without planning, it’s easy to break your back-to-school budget.

So sit down with the kids and make a budget before you shop — and then stick to it.

These back-to-school expenses add up quickly. In fact, this is one of the biggest consumer-spending periods of the year, second only to the winter holidays.

In these few months, spending reaches nearly $23 billion — $70 billion if you include college students. According to the National Retail Federation’s “Back-to-School Survey,” parents shell out an average of $603.63 getting their children ready to return to school.

This burst of spending will probably impact the stocks of some companies. And therein lies another great opportunity for financial education —  this is a chance to introduce kids to the workings of the stock market.

Some sectors are particularly affected by this spending surge. Retail, for instance, will get a bump: 57 percent of back-to-school shoppers will make purchases at a department store, 48 percent at clothing stores, 38 percent at an office supply store, according to the NRF survey.

Parents should identify a few leading back-to-school businesses and add them to a stock market “watch-list.” Together, adults and their children can monitor these stocks’ prices through September.

Parents can explain that many retail and consumer product companies have been hit hard by the recession. Investors are worried about reduced consumer spending and double-dip recession.

Will the back-to-school burst boost these companies’ stock prices?  Have the kids make their own predictions, then track what happens.

Once the back-to-school rush is over, have your child monitor a handful of stocks for companies of particular interest, like toy stores, fashion lines or television networks.

This is a simple way to ease your child into understanding the financial world.

Unfortunately, parents are often hesitant to teach financial literacy. According to a recent ING Direct survey, a mere 26 percent report feeling comfortable discussing finances with their children. Believe it or not, more parents say they are comfortable talking to their kids about drugs and alcohol than about money. And yet 95 percent of parents consider themselves their children’s primary source of financial knowledge.

The parental discomfort over this topic leaves most students oblivious to the basics of investing. In fact, only 17 percent of high school seniors know that saving and checking accounts will not yield average returns as high as stock investments, according to a report from Jump$tart Coalition for Personal Financial Literacy.

Managing money is an essential life skill. Yet many people lack it. When students become adults they need financial dexterity for smart investing, staying out of debt, managing a home mortgage and saving for their future.

As you get your children outfitted for the new school year, remember to equip them with some financial know-how as well. Their back-to-school gear will have them ready for their teachers’ lessons, but the lessons of investing and financial responsibility need to come from home.

One comment

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Dan Greenshields has rightly pointed out the need of the hour -TEACHING MONEY SKILLS to CHILDREN. The current financial situation is such that those who don’t learn about money skills will be the ones suffering most.

An uneducated individual armed with a credit card and access to a mortgage can be just as dangerous to themselves and their community as a person with no training who is given a car to drive.

We would not allow one to drive a car without getting a driving license yet we allow people to enter the financial complex world without any financial education.

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