3 Simple Strategies for Setting Your Kids on The Path to Becoming Financially Responsible Adults
Parents have a responsibility to teach their wards values such as being kind, humble, charitable, being good citizens and taking responsibility. While nobody seems to have a perfect handbook on teaching values, many parents are doing a great job of helping their kids grow up to become responsible members of the society.
However, many parents still seem to struggle with finding the best ways to teach their kids about money. DebtConsolidation’s 14 Invaluable Habits guide on what to do with your money observes that “only 37% of Americans could answer five basic finance questions in a survey by the FINRA Investor Education Foundation in 2016.” Many parents are simply not financially responsible and they in turn are unable to raise financially-smart kids.
For one, many adults today didn’t really have anyone to teach them how to manage their finances. The little they know today, they learnt from the school of hard knocks via trials and errors in dodging pitfalls that could lead to a bankruptcy. However, each new generation ought to be an improvement on the previous generation. This piece provides insight into 3 practical tips for teaching your kids about money.
The first step towards teaching your kids good money habits is to be a stellar example of decent personal finance management. You can schedule time to talk to your kids about money all you want, but they’ll learn some of their biggest financial lessons by watching the decisions you make when you are too happy/stressed to notice them watching you. You can’t be teaching your kids about saving money when you haven’t committed to a savings plan. If you are always buying things because they are on sale, your kids could potential start thinking about the “deal” part of offers without paying attention to the reducing effect of such offers on their account balances or credit scores.
2. Let them manage their money, start with savings
Parents are often tempted to help kids manage their finances – and of course, you’ll most likely do a better job in helping them keep their personal finances afloat. However, when they become legal adults and eventually leave the comfort of your homes, you might be leaving them out cold because they’ve never managed a bank account, paid bill, saved money, or paid back their debts.
You may want to get them started with savings – a piggy bank, a savings app, or a bank account – encourage them to start putting some money away when they mow the neighbor’s lawn. You should also allow them to make their own financial mistakes – including clearing out all their savings one random Saturday – instead of saying ‘NO’, you can be sure that the consequences will teach them a lesson.
3. Help them differentiate between wants and needs
One of the biggest personal finance problems that many people experience is an inability to distinguish their needs from their wants. A need at its fundamental level is something that is essential for survival while a want is something required to satisfy desires. Hence, you need food to stay alive, but you want to eat at a Michelin because you feel like eating something different.
In practical terms, it is somewhat difficult to explain the concept of needs and wants to preteen kids. However, steering them towards the idea of delayed gratification might be the first step towards helping them identify their wants and need. Yea, they need a smartphone to talk to their buddies and watch some science vides on YouTube; they want an iPhone X because it’s the cool phone.