With so many opportunities to go into unnecessary debt, it is important to teach kids at an early age the importance of financial responsibility. The following three tips can create a strong foundation for children before they leave the home and become financially independent.
1) Teach by Example
Actions of parents will have longer lasting consequences, good or bad, more than what they say. When going shopping, for instance, include children in the process. If an item is suggested that is outside of the prescribed budget, explain the importance of living within one’s means and buying the most important items first. Showing children how to properly plan, budget, and compare prices will instill these skills within your children as they are consistently done.
2) Have Them Earn Luxury Items
Whether it be the latest video game, the newest phone, or the fanciest shoes, children should be encouraged to pay for part of whatever luxury item they want. While it may be unreasonable to expect children to pay the full cost of the item, a plan can be made and discussed with the child to have him/her work for and subsequently pay for part of the item. Doing so will cause children to better appreciate the item and be more refined in future purchases.
3) Encourage Savings
Discussing long- and short-term savings goals will have long-term rewards for both parent and child. Encourage children to make saving a habit once they receive any income. Short-term savings can be used for a bike or basketball, while long-term savings can be geared towards college. If you see your children not saving or taking too much out of their savings, do not immediately intervene. It is better to let them learn of their mistake at an early age than later on in life.
For more information about helping your children with their financial needs, check out our Be Money Smart road map.