The quote “a penny saved is a penny earned” tells us that money we save is more valuable than money we spend right away. A majority of parents are falling short when it comes to teaching their children that important lesson.
T. Rowe Price (NASDAQ:TROW) found that not only are 71% parents are reluctant to have financial discussions with their kids; mom and dad are making big mistakes when it comes to saving. A majority of parents have insufficient emergency funds to cover at least three months’ worth of living expenses. Almost a quarter of parents have used retirement savings for nonessential expenses, such as vacations.
"Although parents may not want their kids to worry about money or think that they’re too young, our data supports the value of parents having money conversations with their kids," says Judith Ward, Senior Financial Planner at T. Rowe Price.
Ward says parents should take advantage of teachable moments.
"Combining money conversations with opportunities to experience money - such as giving an allowance, opening an account for kids, or giving them a limited amount of money in their favorite store - is the most effective way to raise money savvy kids."
Experts say financial literacy is more important as children become adults.
“Without a cash down payment you will likely not be able to obtain a loan to purchase a car or a home.” says Greg Anton, Chairman of the American Institute of Certified Public Accountants National CPA Financial Literacy Commission. “If you don’t start the discipline of saving early in life, it’s more difficult to break the spending habits and save throughout your life.”
Despite understanding the importance of saving for emergencies and retirement; a study by Fifth Third Bank (NASDAQ:FITB) found that Americans are not implementing the financial lessons they’ve learned.
“Many adults aren’t saving because they don’t have a plan in place,” says Stacie Haas, Fifth Third spokesperson.
Joanne Kerstetter, Spokesperson for Money Management International says any savings plan should include paying yourself first.
“Put it on autopilot and have it deducted from your pay or checking account,” says Kersetter. “In order to estimate your savings needs, you need to develop short, medium and long term goals. Then estimate how much you’ll need for each goal and set aside in a savings plan.”
Most experts advise consumers to save three to six months of expenses in an emergency fund. Pamela Yellen, financial expert and New York Times best-selling author disagrees. Yellen says the Great Recession was a wake-up call.
"We found that you could lose your job and not get another job for two years or longer. My advice is that your rainy day fund should be equal to two years of your household income.”
Yellen says while two years savings may feel daunting; it's not impossible.
"If you increase the amount you’re putting away each year by just one to two percent, you’ll find that you won't really feel the pinch,” says Yellen. “You’re going to be amazed at how much your liquid savings can grow."
This is the fourth and final report in a series of articles that appeared weekly during April; National Financial Literacy month.
Linda Bell joined FOX Business Network (FBN) in September 2014 as an Assignment Editor after more than a decade at Bloomberg News. She is an award-winning journalist/writer of personal finance content. You can follow her on Twitter @lindanbell.