As parents, we all want what is best for our children, and that involves setting them up with a strong foundation and the proper tools to succeed on their own. Part of this foundation includes teaching them financial stability and making sure that they understand the value of money, as well as how to handle their personal finances. Here are some key ways to ensure that your children, no matter their age, are set up to succeed when it comes to money.
Lead by example
Your children are always watching, so it’s critical to set a good example. Be mindful of the little things, like how often you pay with a credit card or the impulse purchases you make. Chances are, your children will follow your example and develop habits based off of your actions.
Forget allowance – try commission
Instead of just forking over cash each week as an allowance, why not teach your children the value of working for their money? Come up with a list of household chores, like doing laundry, mowing the lawn, or taking out the garbage, and pay them based on the tasks they complete. This will help them to understand that money is not given, it’s earned.
Teach them how to budget
Paying your children a commission-based allowance that corresponds to the chores they complete is also a fantastic way to introduce them to budgeting. Sit them down and explain that the money they earn from their allowance will be the only money they get. That means that if they want to go to the movies with their friends, buy a new video game, and pick out a dress for the upcoming homecoming dance, they will need to plan accordingly and budget based on their priorities.
Save, save, save
It’s important to teach kids that money is not just for spending, it’s for saving. While it will likely be difficult to teach young children the concept of saving for the future, starting small is still a step in the right direction. For example, if your young child asks for a toy, sit them down and explain that they can save up for it. As they get older, the prize will likely get bigger and bigger, from a bike, to a spring break trip, to college tuition, and beyond.
Highlight the importance of giving back
Almost as important as teaching your kids the importance of saving is teaching them the importance of giving. A great way to introduce the concept is by matching their allowance. For every dollar they earn, set aside a dollar for them to give to charity. Once they have a decent sum of money saved up, sit down together and choose a charitable organization to donate the money to.
Teach them the ABCs of finance – credit cards, debt, loans, etc.
School prepares our children to take on the world, but unfortunately, many young adults graduate high school still not fully understanding the world of finance. They may learn compound interest in math class, or how to calculate a tip for a waiter, but understanding debt, credit, loans, etc., is a whole different ball game. Be sure to explain the difference between a debit card and a credit card. Point out the dangers of taking on too much debt, as well as the difference between good and bad debt. Teach them about loans, including the interest you commit to when you take out a loan. Knowledge is power, so set your kids up to be powerful.
At The Humphreys Group, we understand that you’re leading by example. Educating your children about personal finance is not something that happens overnight, but if you chip away at it little by little, you will set your children up with strong habits that will serve them long into the future. Want to continue the conversation about instilling positive financial habits and leading by example when it comes to money? .