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As a parent, your financial behavior strongly influences your children. One study indicates that a child’s money habits will be set by the time they turn seven. So, if you don’t worry about saving money or paying off credit cards or debt, they won’t either. However, you can make a conscious effort to instill different values in your children. Below are four things you need to teach your kids about money if you want them to be successful in managing it:
This lesson is best for high school-aged children. They should understand math well enough for you to be able to discuss interest rates and grasp how they can compound over time. If your children are planning to attend college, the interest conversation becomes even more important as you help select how they will pay for college. Some students will only require one or more small loans to pay for things like textbooks or a semester’s tuition, while others may be looking at more substantial, longer-term loans that they may be paying back for decades to come. These decisions make a great teaching tool about interest.
When your child is in pre-school, they are capable of understanding the concept of saving money. The easiest way to help them understand about saving is to buy them a piggy bank. Show them how gathering small amounts they receive overtime (from birthdays, grandparents, etc.) allows them to buy bigger things later. Key to this lesson is not purchasing everything your child desires for them, because then they have no drive to spend their own money.
- Needs Vs. Wants
When you feel your child is old enough to start receiving an allowance, see it is a great time to have the needs versus wants conversation. Make it very clear to your child which of their needs they are now responsible for meeting with this new income, instead of relying on you to provide for them. For example, are they now responsible for buying all their school clothing with their allowance? Help them plan how to utilize their allowance to meet their needs, then determine how much money they will have leftover after their needs are taken care for things they want to do, like go to the movies or eat out with friends. As your children grow older and take on jobs, increase their financial responsibility for their needs in a way that corresponds with their growth in income. As you teach your children how to meet their financial needs first, you are teaching them how to live within a budget.
As stated above, your children learn the most about money by watching the way you handle it, so invite them into your family financial conversations. Let your children hear how you plan to pay bills and deal with missed payments or overpayments because they can learn from all of it.
It is never too early to start teaching your kids about money concepts if you want them to have a solid financial future. Start when they are little by teaching them about saving and inviting them to attend your family financial conversations. When they start receiving an allowance, help them understand how distinguishing between the things they need and the things they want establishes their budget. When they are in high school, help them understand the concept of interest because it will inform many of their adult decisions. Overall, if you want a better financial future for your kids than you have, start teaching them now!