As parents of tweens and teen, we have many responsibilities and chief among them is preparing our kids to be independent in the (not so distant) future. A key part of living on their own successfully is knowing how to manage money. However, many young adults lack the financial acumen to support a healthy lifestyle. As previously discussed, the Survey of States by the Council for Economic Education found that only 17 states (34% of states) require high school students to take courses in personal finance. That means for many parents are their kids’ only financial literacy teachers. Here are some helpful tips you can pass on to your children in order to help them manage their personal finances in the future.
1. Show them how to budget
According to Beth Kobliner, author of the New York Times bestseller Get a Financial Life, even six-year-olds can learn how to budget their money. In fact, a report from the University of Cambridge found that kids’ money habits are formed by the time they are age 7, so starting them young is a good idea. Kobliner recommends that parents start taking advantage of everyday teachable money moments.
Use the grocery store and adjust by age. For instance, with little ones you can try giving a few dollars and letting them select a favorite taste treat. Given teens $10 and see if they can come up with all the ingredients to make something for the next bake sale. With teens, up it to $20 and put the in charge of buying dinner. This will teach them how to prioritize certain wants over others, with the limited money that they do have.
Giving them lessons in self-control will come in handy when it’s time for them to open their own savings account.
Then take it a step farther and include your kids in your family budget discussions. You can go deeper as kids get older. What’s most important is having the conversations. I love what Ron Lieber says in his book The Opposite of Spoiled about budgets being a reflection of what matters and how parents can use their budgets as an opportunity to impart your values to their kids.
2. Inspire them to be entrepreneurial
Getting a job is a vital milestone to help your kids attain financial independence. If a job isn’t feasible, consider jobs around the neighborhood such as pet care or lawn care for earning extra cash. See if there’s a job board you can use. Our neighborhood has a list in our online directory of kids who are available to work. This helps teach them that money is earned.
You can also give them ideas to earn extra money during summer vacations, such as running lemonade stands or babysitting. A good starting point is to find activities that they already enjoy doing and encouraging them to generate ideas of how they make money while having fun.
3. Educate children on how loans work
With a child who is a senior in high school, understanding loans is paramount right now. And I have to say that college costs and student loans seemed like something in the distant future and now we are staring them in the face. Even if it feels far off, it’s probably much closer than you think. Their first major loan will likely be a student loan to help them pay for their college education, and preparing them for dealing with making repayments will help them stay the course once they graduate and have to start paying for other expenses like rent.
It’s a good idea to teach them how there are different kinds of loans and how they work.
Debt.org provides a safe example of this, which involves demonstrating the concept of debt by advancing them small loans for things that they can’t afford at the moment. Provide a set amount that they have to pay off each week, as well as the penalty for missing a payment. Talk to them about different types of loans and how rules change based on state. For example, the Epoch Times reports that payday loans in Chicago often require repayment within two weeks’ time. In contrast providers of title loans in Cleveland are able to give borrowers up to 3 years to repay their loans. Even though they may never need these types of loans it is good to get them understanding how different loans work.
4. Teach them the importance of having an emergency fund
For adults, having an emergency fund can come in handy during times of illness or unemployment. Kids, too, can learn about the importance of having this fund, according to words of wisdom from the Penny Pinchin’ Mom.
To start off, you should discuss with them an appropriate percentage of their budget that will be put aside in a no-touch fund. They need to understand that they can only use it during a true emergency, and not a video game release or a shoe sale at the mall. When something truly vital comes up, like their laptop that they use every day for homework is broken, they can dip into their fund and pay for repairs out of their own pocket. This instills within them a sense of personal responsibility and also shows them the value of having a financial safety net when things go south.
Because parents are the number one influence on their children’s financial behaviors, it’s up to you to help raise a future generation who are conscious consumers, investors, and money savers. As you can see, it’s never too early to start instilling good financial habits in your kids.
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