It is never too early to start teaching your children about money. While many parents shy away from discussing financial issues with their kids, this can be one of the biggest mistakes that they make. Instilling good habits and a basic understanding about how finances work can give your child an edge that will stay with him or her for a lifetime.
1. There is a difference between the things that you want and the things that you need.
Wants versus needs can be a tough concept for kids to understand, but teaching them that real necessities must be met first is one of the most important lessons they need to learn. Spending money on wants is not bad, but if everything is prioritized, then their money will be well spent, and they will be happy with what they have.
2. You need to make proactive choices when you spend your money
Because money is a limited resource, spending it on one thing means that it won’t be available to spend on something else. Use real life examples when you talk to your kids, such as how by driving to your vacation destination instead of flying allows you to stay and enjoy the trip for an extra few days.
3. You should shop around to get the best deals and prices for your purchases.
Taking the time to do some research can reap big rewards in terms of money saved. Show your kids how the same product could be had for different prices, such as when you use a coupon at the grocery store or buy something used at a yard sale or online.
4. You need to save at least one dime for every dollar that you get.
The earlier kids start saving, the better off they will be. There are two main reasons behind this. First, saving a dime for a dollar will get them into the habit of putting away at least 10 percent of their income. Second, because of compound interest, the sooner they start saving, the faster their money will grow.
5. Credit card are not free money
With credit cards, it is easy to spend money, and kids tend to view them as an unlimited resource of funds. Help them to see that when you use a credit card, you are essentially taking out a loan, and you will pay interest on the purchase as a privilege. Help your teens learn to manage credit by using a pre-paid credit card, but make sure that they understand the terms and the fees that come with it.
6. Debt can quickly snowball
Spending more than you earn can lead to debt, and thanks to compound interest, this time working against you, debt can snowball into even more debt. The slower you pay off a loan, the more money it will cost you.
7. Protecting personal information is important
Giving out personal information, such as where you bank or your credit card number can be risky, because that information could be stolen. You shouldn’t share this information with friends, and scammers could use tricks to try to get you to reveal your financial situation. Fake online stores do exist, so kids should know how to spot them.
8. You need to have financial goals and work toward them
People with solid financial goals and a plan to meet them are more successful than those who simply wish they had more money. Teach your kids about setting a plan of action and then help them find opportunities to work toward fulfilling it, such as taking on odd jobs to save money for a “want.”