It’s important to start teaching your kids financial concepts at an early age. By gradually introducing them to the fundamentals of saving and spending, you can communicate important values that can help them build a sound financial future. If they don’t learn these lessons from you, they’re unlikely to learn them in school.
Here are six ways to help your kids become responsible with money:
1. Be a financial role model
Your kids absorb everything you do. That includes the financial decisions you make. If they see you paying your bills each month using an online budgeting tool, they learn that the things you purchase must be paid for with the money you earn. If they see you pulling out a credit card to pay for everything, they learn that credit cards are the way to pay for things.
Bottom line: Parents have to walk the walk, not just talk the talk.
2. Teach the art of budgeting
For young kids, this can mean getting them to help you to find the best price on orange juice at the grocery store. For children with an allowance who want to buy something they can’t afford, this can mean devising a schedule of extra chores so they can earn the extra money they need. For high school kids, it should include helping them to open and keep track of a checking account.
Bottom line: The way to get the things you want is through careful saving, not impulse spending.
3. Instill a savings mentality
It’s never too early to open savings accounts for your kids. And, as they begin to acquire money of their own, you can encourage them to sock away 10 percent of their “income.” They will learn how saving some of their allowance or that birthday money from Grandma will enable it to grow if they leave it in an interest-earning account.
Bottom line: You need to pay yourself before you pay others.
4. Allow them to earn income
As kids get older, there’s a lot of value in their having some kind of work experience. A real paycheck can help bridge the concept of money in and money out, and introduce the reality of paying taxes. Most kids won’t really understand the true value of money until they have earned it themselves.
Bottom line: Earned money is precious money.
5. Help them understand credit
There’s a lot of debate about how much access college students should have to credit cards. But there shouldn’t be any debate about the importance of teaching kids about credit. The basics should come first -- how to save, how to budget and how to balance a checkbook. Then, a bank debit card or pre-paid credit card can be a good first step in learning how to manage spending wisely before moving on to a regular credit card.
Bottom line: It’s important to build a positive credit history.
6. Expose them to investing
Helping kids to invest in a small number of shares of companies that produce products they are familiar with is a great way to expose kids to the stock market. They’ll get the companies’ annual reports and see how their shares increase or decrease in value over time. And watching stocks rise and fall over the course of a childhood can reinforce the idea of long-term investing.
Bottom line: Investing isn’t about making a quick buck; it’s about the long haul.
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