Remember how much you tried and motivated your child before he/she took the first step? Yes, children can’t learn all the things on their own. You have to teach them. Likewise, you have to help your kids to become financially responsible citizens when they grow up.
Helping your kids be financially responsible is as important as teaching them how to read and write.
Plan a realistic budget and involve your kids
Planning a realistic budget is the key aspect of managing personal finance effectively. And, children learn by imitating their parents.
Therefore, involve them right from childhood when you’re planning a budget. When they’re a bit grown up, take their help when you’re planning a realistic budget. Value their inputs and help them realize their financial goals. This will surely help them to plan a suitable budget in the future.
Teach them to avoid impulsive buying
To do so, when you go grocery shopping, give your child a list of items you need and ask them to pick up the stuff. You go and pick certain items which are not on the list but you like it. Also, pick certain items that are offered at a discount. Then, gather all the items both what you and your child have picked up and choose what items you’ll finally purchase. Explain why you’re rejecting the items that are not in the list. Then if there’s money left, consciously select the discount items that you’ll be able to finish before the expiry date. This way, your child will also learn how to make conscious financial decisions and differentiating between needs and wants, and managing money.
Encourage to save a certain amount from their allowance
One of the most powerful tools of teaching children about money is through gifting piggy banks. Have a certain percentage fixed to put into the bank whenever they get any monetary gift. It can be 5%, 10%, anything. Encourage them not to spend from that account and the money can be used when they enter college. This will help them realize the concept of saving for the future.
Give them the freedom to be able to responsibly manage money
Children love to be independent and they cherish when some responsibility is given to them. So, start by giving them small allowance and see how they’re managing it. They might not be able to do it efficiently in the initial stage. But, as a parent, you should encourage them. Tell them to manage their money for a week, a month, depending on how well they can do it. They will make their own decisions and also learn from their mistakes. They will automatically learn how to plan a budget to meet their necessities with the amount.
Encourage to save for buying a thing he/she wants
When your child is a little grown-up and asks for a relatively big purchase, throw a saving challenge for a few months, say about 6 months, wherein the child will have to save a certain amount from the allowance. If your child is successful in doing it, appreciate it by rewarding him/her with the thing he/she wants.
Motivate your kid to earn money
While accompanying you to the ATM, your kid might think that it’s easy to get money; you just swipe a card and money come out of a machine. So, you need to teach them that he/she has to work hard to earn dollars. How will you do it? Just assign some household work to your kid, based on his/her age, and reward them with dollars. It can be helping you in the laundry, cleaning his/her room, and so on.
Teach the importance of giving too
Along with earning, the children should also learn the importance of giving. So, tell them to keep a certain portion for charity. This way, they will learn that giving is also important, which in turn, will inculcate good values in them. They will know that they have to help others too.
Explain the importance of credit score
Credit cards is a boon as well as a curse for the teenagers. If they manage it efficiently, it’ll help them build a good score, but at the same time, they will face debt problems if can’t manage the cards properly. So, teach them the importance of paying back the balance at every billing cycle. Also, they should know that the advantages of having a good credit score. Explain to them how a good credit score helps to enjoy a good lifestyle.
Show them the importance of having an emergency fund
Every month deposit a certain amount to your emergency fund and explain the benefits of it to your child. When you have a sudden car repair, withdraw the amount from that account and do it in front of your child. They will automatically learn the importance of having an adequate emergency fund.
Teach the importance of having insurance policies
When your teenage son/daughter starts driving, explain the importance of having a car insurance policy. Explain that it’s not always possible to cover the big costs on your own; and for that, you need to purchase an insurance policy. Talk to them about insurance deductibles, and slowly explain the importance of purchasing home insurance, health insurance, renters insurance, and so on.
Introduce the concept of retirement
Though it is too early to explain the concept of retirement during the teen years, but they should have an idea. Explain the beauty of compound interest and how you can make money grow when you start early. So, the kids should start saving for their retirement from the first month they start earning.
Along with the above, make them aware of what needs to be done to solve debt problems.
You should indeed teach them how to avoid debt, but at the same time, make them aware of how to solve debt problems if accidentally they incur it. They need to know a suitable option to get out of debt as per their financial situation.
This will make them financially confident as they’ll know how to face every situation in life and emerge successfully.