Most parents hope and expect that their kids will be financially independent someday. Unfortunately, true financial independence may not be possible if kids are not taught at an early age and throughout the teen years the value of money. Many parents want to give their kids everything and anything they want, but doing so without teaching the cost of such purchases and general fiscal responsibility can be problematic when kids grow up and face bills of their own.
Consequences of Neglecting to Teach Financial Responsibility
If children aren’t taught to handle money responsibly at a young age, they won’t know how to budget their incomes successfully once they have jobs and homes of their own. College students and young adults are bombarded with credit card offers, and many apply for them without any inkling of how to use credit properly. Often, they purchase a home, furniture and cars on credit, and then are appalled when the monthly bills roll in.
Today, young adults accrue more credit card debt than their grandparents did at the same age, and they pay it off at a slower rate. Paying only the minimum substantially increases what is paid over time due to the high interest rates.
Teaching Children How to Handle Money Wisely
Follow these tips to help your children learn how to handle money wisely:
- Buy or make each of your kids a piggy bank. This is a fantastic way to teach them how to save money.
- Give your children an allowance. Have them allocate a portion of their money to giving, such as to your church or a favorite charity. Insist that they save a certain amount, and let them spend a certain amount. This exercise will help them learn not to spend all or more than what they have.
- Help them set savings goals. Tell them that they must save for that new toy, bicycle, fashion accessory or other item they desire. To motivate them further, you can tell your children that you’ll match their savings once they reach a monetary goal, such as $10 or $20.
- Talk to your children about the difference between needs and wants. Point out that they may want a new pair of sneakers because they are trendy, but they already have other perfectly good shoes. Remind them that if they buy the sneakers, they won’t be able to purchase that new video game or electronic gadget. Have them weigh the pros and cons of each purchase before making a final decision.
- Give your children opportunities to earn extra money by doing more chores around the house, mowing an elderly neighbor’s lawn or finding a part-time job. Once they realize how hard they have to work for their dollars, they won’t be as likely to waste their money.
- Show them one of your credit card bills. Point to the area that explains how long it will take to pay off the balance if you only make the minimum payment and how quickly the balance will go down if you make a larger payment. Also, point out how much interest you will save each month by paying off the total amount.
- Children learn by watching their parents, and one of the best ways you can teach them to use money wisely is by setting a good example. Try using cash only to pay for your purchases, show them how to clip coupons and use them at the grocery store, and show them how to search for sale prices by going online and by reading store ads. Explain to them about financial emergencies—how they happen to everyone at one time or another and that it’s best to prepare for them.
Teaching children how to handle money wisely will save them a lot of stress as young adults and benefit them all of their lives. Begin teaching your kids at a young age so they can avoid financial hardships in the future.