Financial literacy is challenging at any age. For kids, who often cost more than they contribute, it’s especially difficult to explain how money works. To them it just magically appears when they need it. Here are some tips on raising financially responsible children in a world that is begging them to spend, spend, spend.
Talk early and talk often
It is never impolite to discuss money when it comes to your children. Kids are naturally curious about it. Where the money comes from and where it goes is an important concept for them to understand. Not only does it make them more aware of how finances work, but it also offers a glimpse into how much life actually costs. Earning an allowance through chores or volunteering is a good first step in teaching kids about money management and how to spend money sensibly.
Pass on good financial habits
Financial planning is an important skill that many people have never learned. Building a budget and allowing your children to help is one way to teach them. Also, having your kids make small financial decisions and discussing the outcome puts spending in perspective. For example, would you rather spend your allowance on candy or a trip to the movies? Which is the better “investment”? Let them make mistakes and talk about how they might avoid those mistakes in the future. Hands- on-learning is key in developing a better understanding of finances. The more a child does, the more confident they will become in managing their own funds one day.
Use easy to understand financial terms
How do you save effectively? How does credit work? How is money taxed? Breaking down terms into simple language, with a focus on cause/effect relationships, helps to clarify what can be an overwhelming concept. Using real life examples and visuals is one way to make it easier. Show your kids how to pay a bill online, how provincial sales tax works with a purchase, or how compound interest accumulates. Anything that makes them an active participant will be helpful when it comes to understanding finances, banking and the economy in general.
Give them a reality check
It is especially important when a child becomes a teenager that you set them up with realistic standards for how much essentials cost, and help them to build a budget around that. Teenagers can be very impulsive, so you should also discuss how and when to use credit for expenses. Credit card companies are on university and college campuses, car dealerships are handing out vehicle loans to students and financing companies are offering to furnish college dorm rooms. It is vital that you have discussions with your kids before they do, not only because some of these lenders may be underhanded, but also because ,as a parent, you have a vested interest in your child’s success. After all, if something goes wrong along the way, they may turn to the bank of Mom & Dad to make ends meet.