How to make your kids into good financial managers
These days, kids are getting into debt early. We’ve all heard the stories about students racking up thousands of dollars worth of debt and this can start even earlier when kids are in their teens. With credit card companies offering sweet deals as soon as kids are old enough to sign, it’s no surprise that so many are ending up in debt. But it doesn’t have to be that way. As parents we can do our part to teach children financial responsibility from a very young age. Here are some tips.
Get them a piggy bank
If kids are old enough to get money, then they are old enough to start saving. Get your kids a piggy bank so that they can start saving up the spare change they get from you, the presents from grandma and any cash that comes their way. Encourage them to put most of the money in the piggy bank and leave it there. That gets them started with the habit of saving money. After a while though, the piggy bank will get full and that’s when you move to the next stage.
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Get them a bank account
Your child is never too young to have a bank account even if you have to take responsibility for it at the start. You can make it into a big event to empty the piggy bank every so often, count up the money and deposit it in a bank account. Your child will enjoy seeing the bank balance grow even if he or she has no idea what to do with it yet.
The saving habit
Kids always want stuff so encourage them to take some financial responsibility. When they get money they can allocate some of it towards buying a treasured purchase, as long as they save most of it. Some parents use the matched funding method, where if a child is able to save half the purchase price the parent will pay the rest. This works well for younger kids with less earning potential.
The earning habit
Encourage your kids to do odd jobs to earn pocket money or boost their savings for a planned purchase. Having to earn the money themselves will give them a greater appreciation of what it takes to get it and they are less likely to fritter it away. This is one rule that you may want to apply with care because you have to make the distinction between the jobs that are regular household responsibilities and those which have earning potential.
Take them shopping
There’s nothing to teach your kids the value of money then taking them shopping with you so they can see exactly how much the products you buy cost. This also helps them to compare the relative costs of different brands so when they are older and go out on their own they won’t get a nasty shock. It’s also worth letting them see you comparison shop for household utilities. Let them celebrate with you when you get a cheap broadband deal or save money on electricity.
Encourage financial caution
This is one area where you can lead by example. Let your kids see that where possible you spend no more than you earn. Where you do need to buy something on credit you don’t spend excessively and you do repay it as soon as possible to avoid racking up high interest charges. Letting your kids understand the thinking behind your own money management practices is the best way to help them avoid a future debt trap.
There’s more to managing money than simply avoiding debt. Sometimes you have to find innovative ways of making money. So when your kids want to set up a lemonade stand or start a vegetable delivery business, help them to plan and achieve it. However it turns out, they will learn a lot from the experience which will help them manage money well throughout their lives.
Build skills gradually
When children get used to having a savings account, let them move to a checking account once they are old enough. Also consider a debit card or prepaid debit card before allowing them to have a credit card. If you are going to give your kid a credit card then explain how credit works, how interest works and why they need to pay on time. Backed by the other lessons you have given them they will soon be adept at managing their own money.