As a parent, you’re responsible for teaching your children many important life-long lessons.
Of all the wisdom you can impart on them, some of the most valuable is teaching kids about money.
It’s imperative that you talk about money with your kids. Why? The sooner your kids understand the inner workings of personal finances, the sooner they’ll appreciate the value of money. In turn, you will be teaching them that’s it ok to talk about their own finances – (and ask for help) – as they grow up.
To help you successfully discuss money management with your kids, explore our 3 tips to teach your children important personal finance lessons.
1. Teach Your Kids About Debt
Despite its ubiquitous place in modern American society, debt has an extremely negative connotation. People who carry debt have a harder time committing to financial larger milestone purchases, like buying a home or starting a family, and are sometimes viewed as irresponsible with their money, even if they are able to comfortably manage their debt payments.
To explain the role of debt in your overall financial picture to your child, start by explaining some of the debts you’ve had or still have. For example, you can talk about the fact that you owe money on the car you drive to take them to school. Or, you can explain that your home is still technically owned by a bank.
As your kids approach the tween years, you can also talk to them about other forms of consumer debt, like credit cards and high-interest personal loans. Budgeting for teens is a concept and practice best introduced at a young age. That way, your child will know what to do with their income once they begin working their first job and earning their own money. Once they understand that using a credit card is not akin to free money, they’ll have a better idea of why it’s important to spend responsibly. They’ll also understand that, if used right, debt can help improve your financial footing.
To put these principles into practice, consider lending your kids money to pay for something they want instead of simply buying it for them. When I was 14, for example, my dad loaned me $750 to help me buy a computer. It was my responsibility to pay him back, interest-free. I learned quickly that this debt meant I was beholden to someone else.
2. An Allowance For Kids is a Powerful Personal Finance Learning Too
Giving your kids an allowance can help them learn the importance of work and the value of money. On the flipside, allowances can also cause problems down the road – especially if your kids grow up to expect free money.
Make sure your kids understand why they are receiving an allowance in the amount you deem fair. Then, consider giving them household chores to earn their allowance; there are lots of ways for kids to make money (and alleviate some work for you!). Lastly, talk to them about jobs you’ve held and how much you were paid. This way, your kids will appreciate the value of working hard to earn money.
No matter how you decide to give your child an allowance, work with them on creating savings goals with their allowance money. Not only does this teach them to use money prudently, but it can also prevent them from attempting to make frequent withdrawals from the Bank of Mom and Dad. Teach them automatic savings skills by offering to hold onto a percentage of their allowance every week for an agreed-upon time, so that they can enjoy the fruits of letting their money grow.
3. Teach kids what it means to live within your mean
Your kids may not be pleased with all of your financial decisions. They may complain when you buy generic brand cereal and they may turn their noses up at hand-me-downs. No matter what you’re able to afford, it’s important to teach your kids what it means to live within their means.
If your child is making their own money, their desire to complete an expensive purchase is an excellent opportunity for you to teach them actionable budgeting. Help them open a high-yield savings account that they can contribute to every time they receive a paycheck or direct deposit. Experiencing how long it can take to save up for something they want instead of need, is a simple way to help them put extravagant spending into perspective.
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Giving your kids a financial head start is a process. But if you want your children to know how to manage their money when they get older, these tips can help create a more organized process.