Most parents are quick to teach their kids about staying safe and being polite, but valuable life lessons about money can seem more daunting. However, parents are a child’s biggest influencers when it comes to money — after all, you’re their only role model when it comes to spending and saving your hard-earned cash — so it’s important to teach your offspring how to handle finances. What should you teach your kids to help them grow into a financially mature and independent young person? Here are five important money management lessons that kids need to hear from their parents.
Lesson 1: Frame Wants Versus Needs
Young children and even many teenagers tend to undervalue the difference between wants and needs when it comes to spending money. It is important for parents to demonstrate that there is a difference between absolute necessities like housing, bills, and food, and items that may seem important but are non-essential like new mobile phones or clothes. Teach them that it’s vital to keep money aside for required payments before they start spending on non-necessities.
Lesson 2: Put Costs Into Perspective
Your kids probably think that they’d be rolling in it if they earned an adult wage. In reality, they are probably underestimating how much money is absorbed by taxes, a mortgage, childcare, and other important payments. When your child asks for an expensive games console or toy, put the price into perspective by discussing how much people in different jobs earn and where their money might go before they pay for that item. It might be helpful to frame it in terms of how many hours that child would have to work to earn the money if they were earning a typical wage. It’s always a good idea to start helping kids learn about their spending habits and choices by empowering them to earn the money for items they want by doing chores or extra tasks to help.
Lesson 3: Encourage Good Saving Goals
Teaching your child how to save their money is one of the most helpful things you can do for their development. Encourage them to save a portion of pocket or birthday money towards something they have asked for like a new gadget. You could even offer to give them a little interest if they manage to save up for a certain period of time. This lesson will last long into the future and play a huge role in your offspring reaching financial independence as an adult.
Lesson 4: Search For The Best Deals
Show your kids that prices can vary hugely across the same products — not all houses, computers, and shoes are priced equally, but sometimes it can be worth paying more for a better quality product. This lesson is one that many adults take for granted but it can lead your child in the right financial direction from an early age. It can be as simple as showing them that two off-brand toys cost the same amount as one branded product, and asking them to think about the best combination of quantity and quality.
Lesson 5: Credit Card Debt Is Serious Business
As your kids hit their teen years and start thinking about jobs, moving out, and independence, it’s vital that you teach them about credit cards and how to avoid credit card yet. Stress the fact that credit cards should only be used with caution and a plan to pay off what is charged monthly. Also, you should stress that credit cards certainly aren’t for discretionary spending. Remind them that credit card debt can affect their credit history and make it difficult for them to buy a house or a car or even get a job in the future.
Like it or not, money is a central part of all our lives, so teaching your kids to be financially responsible before they start earning money will pay off down the line.
Consumer Education Services, Inc. (CESI) is a non-profit committed to empowering and inspiring consumers nationwide to make wise financial decisions and live debt free. Speak with a certified counselor for a free debt analysis today