Financial responsibility is one of the skills people will likely need throughout their entire lives, yet it is rarely taught in any depth at school. To ensure that your children understand the importance of how to handle money, it may be best to teach them yourself. The same basic principles are important whether your children will be swimming in wealth or living paycheck-to-paycheck.
Budgeting is a fiscal skill that many adults don’t have, let alone children. However, it’s an essential one to teach if you want them to be able to keep track of their money. You’re not likely to get far with formal spreadsheets and fancy terminology. Instead, impress upon them the concept that if they spend all their money on one thing, they won’t have enough money to use for something else.
Everybody enjoys getting something for nothing. The magic of compound interest is just that. Since the mathematics can be difficult for a child to understand, teach them about compound interest through a real-world example. If you open a savings account for your children, you can show them how their money grows each month.
Categories of Savings
Children are unlikely to understand the concept of different categories of savings without a little help. Since terms like “emergency fund” and “targeted savings” are likely meaningless to them, consider focusing on how their savings can be used for different purposes. You can explain the concept of an “emergency” fund by asking your kids to always save a little money in case some short-term opportunity pops up, like the chance to attend a show or concert. Older kids might understand the idea of keeping something tucked away for an emergency bus ride after a flat tire on a bike or a missed ride home. For longer-term savings, encourage them to set aside additional money for things they might want down the road, like an special gadget or trip.
Perhaps the most important lesson you can teach your children is how to stay out of debt. As a parent, you are in a unique position to help your children understand debt because you are essentially their credit card. Your kids can’t spend more than they have unless they turn to you. If you consistently give in to them, you may reinforce a sense that they can spend whatever they want. You might have better success teaching them about credit and debt if you restrict their spending to savings they already have on their own, or at least develop a payment plan in which they work to pay back money they borrow from you.
About the Author
John Csiszar began writing in 1989 and his work appears in various online publications, including The Huffington Post. Csiszar earned a B.A. in English from UCLA and served 18 years as an investment adviser and certified financial planner.
This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
Published by permission from ConsumerInfo.com, Inc. © 2013 ConsumerInfo.com, Inc. All rights reserved.