Every parent wants their children to lead lives that are happy, healthy, secure, and financially better off than theirs. No mom or dad wants a son or daughter to experience unnecessary hardship, especially when it comes to money. But moving your offspring in the direction of financial security isn't about leaving them a bundle of bucks or hoping they marry into wealth. It's about teaching them to manage their finances on their terms, and that education starts early. Here are eight ways to help your kids towards financial freedom.
Set the prime example
Parents have many resources to work with in order to teach children about money. Games using familiar coins that the youngest child will enjoy and understand, online classes to take with your kids, electronic custom spreadsheets, and digital calculators for creating a home budget that includes income and expenses, mom and dad have to set the first and best example of wise spending. Smart spending is a family affair, and children understand it best when they see the people they love, respect, and live with every day doing what they are told to do.
Spending begins with saving
Before you can spend anything, you have to save something. For very young children, that's a clear glass or plastic container with denominations they understand. The money they see is money they know. They touch it, count it, add to it regularly, and watch it grow. Saving is a regular exercise, and every time they receive money, a percentage always goes to savings.
Money isn't free; mistakes cost money
Parents instinctively want to step in and prevent their kids' failures, but the fastest financial teacher is sometimes letting your child learn a money lesson the hard way. Buying something they want right now, rather than saving and taking the time to look for a better deal is a good example of a money mistake they'll make infrequently. Once they understand that spending money just because it's available costs money later, they'll learn the art of the cautious deal.
The difference between spending vs. investing
Children are constantly influenced by commercials, friends, and Internet influencers posting on social media websites. If their friends have it, they see it on Instagram or a TV program features a character wearing or using it, they want it. They may own an older but perfect version of the same item, but this one is new, shiny, and attractive. This is the opportunity for a lesson in spending now vs. investing in a product or service uniquely beneficial to them. What's more important—the newest phone or jeans just because "everyone else has them" or saving to invest in an upcoming and more necessary purchase in six months?
(S)he works hard for the money
The great allowance debates existed almost as long as kids and money. To give a child money every week to spend or provide funds as a commission based on chores completed is a personal parental decision. Handing a child money every week teaches nothing about its value and offers only the opportunity for the child to assume there will automatically be more if needed. Paying money as an exchange for chores provides an early lesson in the adult working world: your hard work is expected and these funds are the exchange rate.
What do you mean, "I love it, can we buy it?"
Impulse buying isn't suddenly the responsibility of a parent when the child is short of funds. That desired dress or electronic device that your kid can't afford without your help is still their decision to buy it, pass, or compromise: think about it for 24 hours. Let the purchase passion pass and rational thought (and a little research) take its place. Go online together and find a better deal, make plans to buy at a later date or do without it.
Your money, your life, your bank account
From the clear coin container, children move on to a bank savings account. Take your child to the bank, open the account together, and explain the steps of where the money goes and what the bank does with each deposit. Include a discussion of interest and establish an online login so you and your child can check the account's progress. Older children can add a checking account and learn how to balance their digital checkbook, transfer funds, and the financial consequences of overdrafts and bounced payments.
Later comes sooner than you think
Smart spending includes saving for a future your kids may not be able to imagine right now: college and investing. Kids interested in increased independence ready themselves with an honest discussion of how to pay for higher education. Start the discussion by asking them what they want to do after high school and what they envision as necessary training. Some kids aren't destined to matriculate as four-year college students and do better starting at a less-expensive two -year community college or trade school. Others appreciate a British style "gap year" before college to work full-time and strengthen their financial position, or part-time schooling combined with a job. Start them on the path to growing and investing money by researching companies they know, financial histories, rates of return, long-term performance, how Wall Street works, investing terminology, and what to do whether the markets are up or down.
If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you’re just not seeing your balances go down, call Timberline Financial today for a free financial analysis.
Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs. You don’t have to struggle with high-interest credit card debt any longer.