We all want what is best for our children and grandchildren, and that includes setting them up with a strong foundation to succeed on their own. Part of this foundation includes teaching them about financial stability and making sure they understand the value of money. Here are some key ways to ensure the children in your life are set up to succeed when it comes to money no matter what their age they might be.
Lead by example
Remember that the children in your life are always watching you so it is essential to set a proper example. Be attentive to the small things, like how often you use your credit card or the impulse purchases you make. Most likely, your kids will copy your actions and form habits based on what they see from you.
Forget allowance - try commission
Why settle for just giving children an allowance each week when you could teach them the value of working for their money instead? By coming up with a list of household chores - like doing laundry, mowing the lawn, or taking out the garbage - and paying them based on completed tasks, they'll begin to understand that money isn't simply given; it's earned.
Teach them how to budget
If you implement the commission-based allowance approach you can also match the chore values with how it connects to their saving and spending. Educate them on how to put their earnings into buckets of goals – spending, saving, investing, and gifting. If they want to go see a movie with buddies, save to buy a new video game, or help a charity that is important to them, then they need to plan and budget based on those goals.
Save, save, save
Instill the importance of saving in children while they are young. Teaching them that money is not just for spending but for investing in their future selves can be difficult, but it's still worth starting early. You can do this by educating them on the power of the choices they make. Something that may seem super important now, may have passing gratification. Balancing spending and saving can show them that with each year that passes, the prize will get bigger and better--from a bike to a spring break trip to college tuition fees and more!
Highlight the importance of giving back
Besides teaching your kids the importance of saving, it's also crucial to teach them about giving. A fantastic way to introduce the concept is by matching their earnings. 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 everyday finance - credit cards, debt, loans, etc.
Although schools provide an education that prepares children to enter adulthood, many young people graduate without a full understanding of financial wellness. They may learn about compound interest in math class or how to calculate a tip for a waiter, but understanding debt, credit, and loans is another matter entirely. It's crucial to differentiate between a debit card and a credit card. Also, make sure they understand the potential dangers of amassing too much debt. Explain the contrast between good and bad debt, as well as loans--including the interest you agree to when borrowing money. Keep in mind that knowledge is power; therefore, empower your children with this information they need to make healthy financial decisions.
As your financial advisor, I understand that 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? Reach out to me today.