One of the things I vividly remember about my childhood is my parents teaching me about saving. That is one of the things I am most grateful for and am forever thankful to my parents for instilling in me. Now as an adult I see too many people who didn’t have a solid foundation with learning about money and how they made money mistakes that are sometimes irreparable. Money managemnt, savings and the value of a money is some of the best things that parents can do for their children.Parents all want their children to have a better financial situation compared to their own. Most parents remember what their childhood was like. If they struggled, most will try to instill financial values in their children to compensate for their own shortcomings. Others were never taught about finances and therefore don’t have the slightest clue on how to properly teach their children. It is never too early, or too late, to encourage your child towards the goal of financial success. Regardless of their age, it’s essential to lead by example and involve them in your finances early on. Here are some ways to teach your children about personal finance before they start getting credit card applications in the mail.
- START THEM EARLY
Even if your teenager doesn’t have a job yet, he or she is probably getting money from an allowance or as a gift during the holidays. You can help your teen regularly monitor and set aside money in a bank account. Plus, if you link your teen’s bank account to your own, you can make sure your child isn’t making reckless spending decisions.Open a savings account for your child and get them excited about seeing the balance grow. Children will be excited to see their balances grow. Make it a big deal. Work towards a goal with them. Show them the importance of saving. As they start to receive gift money from relatives for birthdays and holiday or earn money from summer jobs, help them understand the importance of saving a percentage of all their earnings. Always stress the importance of not spending everything that they earn. Explain the concept of compounding interest. If you successfully get a child to understand this concept, saving is something they will look forward to doing and be happy to do. Learning about interest in conjunction with a savings account will help later on in understanding the benefits of early investing and smart use of credit cards.
Set small balance goals that your kids can pretty quickly attain. If necessary, as encouragement, consider contributing to their savings account when they reach the goal. Use it as incentive for them to continue to save. If they save a little themselves and then get a little boost from parents, it may encourage the child to save more and more. As their balance becomes higher, it will definitely make the child happier about achieving and perhaps surpassing their savings goal. When their balance has grown high enough, help them choose from next step options like a high-yield savings account, one or more CDs, and eventually investing.
If your kids can start investing as soon as their first job and take advantage of the first company match offered to them, they will be better off in the long run. Deciding what to invest in can be controversial. However, there is overwhelming agreement surrounding the concept of investing a set amount each month from the start of your first job. To take the stress of investment decisions out of the equation, consider one of the computer-controlled (i.e., robo) investment accounts offered by many banks.
Get your child accustomed to reviewing investment statements. If you are investing in an Education Savings Account or a 529 Plan to fund your child’s college tuition, review the account documents with them. Aside from financial knowledge, there might even be added benefits from this, such as motivation to study harder.
3. INVOLVE THEM EARLY
Share with your kids your monthly household budget and how much things cost. Children have no concept of what things cost, you have teach them and teach them young. I remember my parents giving me jobs to do and paying me for it. Nothing was more rewarding than being able to earn my money to in turn buy what I want. Even if they are not responsible for paying anything, having an understanding of how much things cost and how incoming monies get distributed will be helpful. When your kids do obtain a steady income, help them set up a zero-dollar budget. This type of budget assigns every dollar earned to a specific purpose, whether purchases, savings, or investing.
4. Give your child an allowance
An allowance can teach kids about finances, responsibility and the consequences of poor financial decisions. Showing children that things that they want cost money is a very important concept. I remember wanting to buy clothes when I was young. I had to save my allowance for several weeks in order to buy something that I wanted. If the allowance is tied to chores, kids learn the relationship between work and pay. Helping your child understand the correlation between work and reward will set them up for their future careers. It gives kids spending money for non-essential items such as toys and video games. This way, they don’t always have to ask you for money when they want something.
5. Pull Out the Board Games
Monopoly and The Game of Life aren’t just fun. It is a chance to be able to show children that all things cost money. When you play monopoly, you show them that owning property is important , but also that they have to make it all around the board in order to get paid. There are unexpected fees and expenses that come up that you never expect. The Game of Life teaches them to expect the unexpected, which is almost always expensive and completely unexpected.
6. Encourage Teens to Get Jobs and Earn Money
If you have a younger teenager and want to really demonstrate the value of money, you may want to suggest he or she look for opportunities to babysit or mow lawns for money. That is a life long experience that they can learn tons from and grow from it as a result. If you have an older teen, you might want to help them get a job at a restaurant or in retail. Putting in hours to earn money is a may make them value it a little bit more. If they truly want to buy a video game or skate board or clothing, working a job after school or on the weekend is the best way for a kid to earn it. You want them to have a mindset that everything in life is not free and most things require hard work and can take time.
7. Show Your Kids How to Make a Budget
Just like adults make budget to try to simplify their life and analyze their expenses, try doing so with you child or teenager. Sitting down together and creating a budget should be something that you do together. This budget should includes categories and monthly expenses. Help them review the budget on a quarterly basis to make sure they stay on track. Suppose your child or teen loves video games. You both can make a budget to try to figure out how many yards he or she needs to mow in order to save enough minus expenses that may come up along the way. If they intend to go to the movies with their friends on the weekend and pay for that, it may be a little more difficult to earn the money for the video game.
8. Teach Kids to Use Credit Cards the Right Way
“When used correctly, credit cards can be a useful tool to build a solid credit foundation. When used incorrectly, it can give you headaches for many years to come,” Straub says.
That’s why it’s important to discuss the pros and cons of using credit cards, even if you don’t feel he or she is ready to start using one yet. If you do feel your teen is ready, you can add him or her as an authorized user of your credit card.
One benefit is that you can monitor your child’s spending, and by serving as an authorized user, you may help him or her build credit. The caveat is that you’ll be responsible for making sure monthly payments are made on time. Teenagers younger than 18 can’t get credit cards on their own, and even once they hit 18, it can be a little challenging. Keep in mind that your child must have proof of income to apply for a credit card of their own.
9. Share Your Past Money Mistakes
Someday your kids are going to be grown-ups, and if you don’t want them making some of the same mistakes you did as a young or middle-aged adult, you should share your stories with your children.
If you had a period where you took out payday loans, and things went badly, you might want to mention that occasionally as you drive by payday lending stores with your kids – and tell them what a nightmare the experience was. If you spent far too much on your first car, and it took years to pay off, tell your kids. Repeatedly, until they’re tired of hearing your stories.
It may not feed your ego to admit those mistakes, but there are some footsteps in which you don’t want your kids following.
Many will agree that when you have to pay for things on your own, you very quickly learn the concept of wants vs. needs. This is an important concept for parents to teach their children. They may want that new video game, but they need those supplies for their school project. Helping children to differentiate between the two
10. Using a Clear Jar to Save
Use a clear jar to save. Many use the concept of a piggy bank but the only problem with that is you never know how much you actually are saving. Children continue day after day to put money in their piggy banks and can’t conceptualize what they’ve actually saved or if any at all. Saving in a clear jar can bring about a slightly diferent field. Them being able to see your savings over time may encourage them to save even more. It is gratifying to be able to see your savings as they grow.