It’s a tough challenge to raise financially fit kids in this age when their lives are overflowing with marketing and media who push material desires upon them daily. As a financially responsible parent, you are well aware that not all their desires can be met and this is also part of raising their financial awareness. It’s also important that you pass on smart financial lessons at an early age. Here are some tips to help you raise kids who can handle their money sensibly.
Explain basic finances: Talk to your kids about spending and saving money, even very young children can grasp the basic concepts. You can also help them learn about money by using mobile apps. There are a great many out there for all ages including iAllowance, Allowance & Chores Bot, P2K Money, and Practical Money Skills.
Give them an allowance: Let them have an allowance and encourage them to save. In general, their allowance rate should be half of their age in years. Give them a way to save their money, for example, a piggy bank or a young saver account so they can watch their savings grow.
Let them make healthy purchases: If there’s something the kids want and you have to tell them it’s not in your budget, talk to them about using their own money for the purchase. Let them figure out if they have enough to buy the item or if they need to save more money first.
Let them see you pay in cash: It’s important that children understand money in terms of dollars and cents. When you take them shopping pay in cash so that they can connect money with the transaction. If you use plastic, show them how to withdraw cash at the ATM.
Explain that money is a finite resource: When kids see you withdrawing money from the ATM they may not realize that you had to work hard to earn it. So do explain where the money comes from and that it’s only there because you go to work for it every day.
Give them the gift of patience: When you teach kids to save, you are also teaching them to be patient. Encourage them to save their allowance rather than spending it as soon as they get it. While instant gratification is nice when they have to wait for the things they want it will mean that they won’t always be tempted to reach for their credit card when they’re adults.
Set a healthy financial example: Keep your family budget well within your means so that your kids can learn from you. Don’t just talk about ways to save money, let them see you implementing them.
Talk to them about student debt: If your kids are going off to university, by the time they graduate, they are more than likely going to be saddled with at least £40,000 of student debt. This is their first step of financial independence and when they’ll need all your financial training. Make sure that before they leave home, they know all about the value of money, how to budget and save so they can carefully manage each installment of their student loan. They should also understand credit cards and APR and how to borrow money at the best interest rates. This is a good time for them to start building their credit as they will likely need financing to purchase a car later on.
When The Unexpected Happens
You never know what’s around the corner. Your car might break down, you may become ill and have to take time off work and suddenly you find you need some money in a hurry. In this case scenario, British people will often opt for a payday loan, the problems is, this can get you in more of a financial mess than the one you started with. However, it is possible to borrow a small amount of money for emergencies and have longer to pay it back than just one or two paychecks, so you financial pressure is eased. Look here to see loan options that are manageable and explain to your kids, the best ways to borrow money for urgent situations.
Teaching your kids money smarts now will ensure that when they become financially independent they will be able to maintain a healthy budget, stay out of long-term debt and not live paycheck to paycheck.
Luke Lambert has 2 kids, a 12-year-old and a 15-year-old. He teaches them about budgeting and handling finances when he is sorting out the family finances.