Teaching Children Financial Responsibility
A child’s mind is like a sponge. They automatically absorb so much information from their surroundings. Use this to teach them valuable life lessons early so it sticks with them throughout their lifetime. Financial planners say learning how to budget money and live within it is one of the best things an individual or household can do to secure their financial future. A budget provides a plan for how to spend money so all of your needs are covered and your “wants” are prioritized from greatest to least. Now you’re thinking, ‘Great; how do I teach my children this?’ Easy!
Speak to them on their level. You must understand debt (which is an area many adults struggle with). So do your research and be on your best financial behavior. Helping your children understand that there is truly no good debt prevents them from feeling the stress of debt. Have your child pick something they want to buy that is out of their budget. Ask them how they would pay for that item if they do not have the money. You may play the “bank” and buy the item (AKA finance it). In return, create a payment plan with them using their allowance as income until the item is paid off. Track each allowance “payment” on a calendar so they visualize how long it will be before the debt is paid in full.
Teach them what a simple budget is. Every penny should be assigned a duty. It may pay for candy, or popcorn at the movies. Children can learn to create and use a budget based on their allowance. Giving your child a weekly allowance for doing household chores is a great start. Children can also take note that it goes towards practical, realistic things, like gas for the car, or the new pair of shoes they have been eyeing. One of the most important things to remember when teaching your child to budget is remembering to save.. Say your child wants to purchase a gift for a sibling’s birthday, have them set aside a certain amount of their allowance until the goal is achieved—and show them the progress. As their age and financial responsibilities increase, they will have a good foundation to grow on from the lessons you’ve provided.
When your child is a teenager, make sure your children know that their debit card and checking account balance go hand-in-hand. Show them how to keep track of each deposit (credit) and withdraw (debit) that comes through their account. Using a checkbook register to track each swipe to keep up with their balance will help them not to swipe so carelessly. While many kids may not want to take the time to balance their checkbook in the moment, help them build the good habit anyway. Reinforce this by doing it with your checkbook too.
It’s also important to learn how to handle credit and establish a good baseline for future purchases. Teaching young children about credit cards might seem absurd, but showing them early how to be financially responsible in as many ways as possible prevents them from the dreaded curse of credit card debt. The scary truth is high school graduates head off to college and are lured by the shiny, plastic credit card with their name on it. They fall into the trap of spending money to have fun right now, and putting off minimum payments until later. To help your children learn to manage credit, try this at home: find an expired card you have and allow them to “make charges” with you for things they may want to buy at a store. This helps them to understand how to use their allowance to pay off the “balance” at the end of the month. Do the math with them to showcase that minimum payments are a bad idea, so spending frivolously is, too.
These lessons won’t go very far if you don’t practice what you preach. Whether we like it or not, we take after our parents and emulate the habits we observed during childhood. If you want your children to be financially responsible you need to set a good, stable example.
What are some of the most effective methods that you utilize to help teach your children about saving money and financial responsibility? Is there anything you did differently at 18 than you do at 28, 38, 48, and beyond?