Money is one of the most powerful things in our society. In a lot of ways, money is the freedom to do things. That is the very reason why people want to make more of it. It is the very reason why we want our children to do well at school, and go to college and land a decent job. But having money is only a small part of the battle because obtaining financial skills is just as, if not more, important than the money itself, which is why it is surprising schools don’t educate children on how to spend money.
But just because schools don’t teach your kids about managing money, doesn’t mean you shouldn’t. In fact, because they don’t focus on this area is exactly why you should be. Children need to learn important financial lessons to stop them getting into the same messes that so many of us get into. Just take a second to think about how much of your stress comes down to money. Exactly.
But don’t worry, you are not alone. If we have learned anything from the mortgage crisis, and the fact students owe $1.1 Trillion in educational loans and $845 billion people owe in credit card debts, it is that adults don’t know much about finances. So why not make this a focus in your household to ensure that your kids are way more prepared than you ever were, and do it by teaching them a few valuable lessons starting from a young age. Money should not be a taboo topic, it should be discussed openly to avoid them getting into tricky situations.
As such, here are a few lessons that will be invaluable to your child’s success:
Wait. Save. Buy.
All too many adults struggle with this concept, so it is no wonder that kids don’t get it either. But by being able and willing to delay the enjoyment of a purchase can be a great way to help your child to become more financially stable in later life. Basically, from as early as 3 years old, you should teach your kid the importance of seeing something they want and saving up to buy it. A great way to manage this expectation and get them into a great money responsible habit is to get three jars and label them ‘spending’, ‘saving’ and ‘sharing’. Then, whenever your kid gets money – whether it be pocket money or money for doing housework or even birthday money – you should divide equally amongst these three jars. This way they will begin to understand the importance of saving money for a rainy day, as well as being able to buy something small that they have earned. But more than this, they will know the gratification a person can get from helping those less fortunate, and that is a lesson society could benefit from hugely.
Make Wise Choices.
Money is not an infinite entity, and the sooner your child learns that the better. Money can run out if not looked after carefully, and when it does, you can often get yourself into a sticky situation. That is why it is important to make wise choices. It is up to you how and when you start introducing this idea of spending wisely and talking them through the pros and cons of spending everything they have, but it is a must teach topic. It could be that teaching them through words isn’t enough, though, and you may have to lay out some real life examples, and possibly even let them make decisions on certain purchases that you can then educate them on afterward.
Understanding Credit Cards
This is a simple rule to say and yet a harder rule to follow, but essentially you need to teach your kid about credit cards and that they should only use them if they can pay the balance off in full at the end of each month. That is that. So many adults slip into the horrors that can be using credit cards, and by not educating your children properly that could see them left with the burden of paying off credit card debts at the same time as paying off student loans. But more than that, it could affect their credit history, which is something worth teaching them the pros and cons of. Simply explain how a bad credit rating could affect their chances of buying a car, or owning a home, getting a job or even starting a business. Kids always have incredible ideas, and the idea of not being able to make their ideas and dreams into a reality could be the thing that makes money management a big importance in their lives. Why would we want our kids to use credit cards if they can avoid them? After all, the average credit card debt per household is over $7000, which can cripple a lot of families. Don’t let that happen to your kid because they weren’t taught the dangers.
Save and Save Soon.
A tough shift to comprehend later in life is the one from short-term goals to long-term ones, so teach your children about this from an early stage. All too often, we are happy to save a few bucks this week in order to buy those jeans at the weekend, but we won’t put money away into a retirement pot. Well, the sooner you start saving the faster your money will grow, and by teaching your kid that from an early age the better it will be for them as they will have that habit and understanding from a young age. A great way to do this is to explain to them how compound interest works using real figures. Explain to your children that if they start putting $200 into savings each year at the age of 14, then by the time they are 65 they will have over $46,000. If they started doing the same thing at the age of 35 then they would only have $14,000 by the time they are 65. That is quite the difference, and figures that your kid will understand easily.