Like many children, you grew up in a family where “it’s not polite to talk about money”. Various money-related topics like income, savings or simply the price of things were exclusive conversations for adults. On the other hand, our schools don’t even bother to teach even the basics of personal finance.
They teach us everything from physics to arts but finance is out of the question. Everything goes perfect until we reach the legal age that allows us to have a bank account and a credit card.
That’s where we mess everything up because we don’t know how to manage our personal finances. We can’t go back in time but we can make this transition easier for our children. Here are a few tips that will prepare your children to manage their finances alone by the time they are adult:
Counting with pennies
It all starts when your children are old enough to count. Instead of teaching them mathematics with apples and oranges, use real money. Give them pennies, nickels, dimes and quarters and let them count for you as if they are helping you with some hard adult task.
Children love to help adults in their tasks. Teach them to differentiate and count money pieces. Reward them when they successfully accomplish their task.
The basics of money
At the age of 7, teach them the basics of money. Give them a small amount of money and let them choose what they want from the store. They will know that they can’t have that chocolate and the lollipop. It’s going to be only one of those two items because the budget doesn’t allow them the luxury to have both. Do the same when you go to a clothing store or an amusement park.
The notion of money
At the age of 10, teach your children the notion of money by letting them make decisions. For example, if you are in a restaurant, let your children figure out how much tip should be left on the table. They will learn percentages, generosity, and financial limits.
Money is not for free
At the age of 12, give your children a weekly allowance. They will learn how to deal with money in their day-to-day lives. The most important thing to do is to be strict; don’t give them any advance before Monday. They will learn that money is not free and will learn to plan their expenses.
A few weeks later, discuss with them the decisions they made to spend their allowance money. For a kid, managing his allowance money is as hard as if you were managing your monthly household budget. They will make the difference between their “needs” and their “wants”.
They are part of the family
At the age of 15, have your children sit next to you when it’s time to pay your bills. Teach them the whole process and the concept of monthly payments, interests, and mortgages. Make them responsible for a small part of your monthly budget.
Introduction to independence
At the age of 17, now that your children have some experience participating in your own monthly payments, extend their allowance money from a weekly to a monthly basis. They will start planning for a longer period of time. They will start to record their own transactions and balance their accounts.
Set them free
By the time they are 18, they will know how to manage their personal finances. They will differentiate their “needs” from their “wants”. They will wisely use their credit card and start a life with no major financial mistakes.
It’s time to let them go… they are now capable of managing their own financial needs and will refer to you whenever they have questions or problems because you were their only teacher during these long 18 years.
What to Teach Your Teenagers About Financial Planning
One of the most important duties of a parent is to ensure that your children grow up to be mature adults. Part of being a mature adult is understanding how financial planning works, how to anticipate for retirement and how to manage a budget. While this subject can be an overwhelming one for parents to teach, these helpful tips will make it simpler.
There is no denying that part of the financial equation, for adults and for teenagers, is bringing in an income. Teach your teenagers that work is expected of them, whether that is chores for an allowance, a summer job or a weekend shift at a local business. Explain that a strong work ethic is vital, and ensure that your teenager understands and appreciates the value of a day’s work. Ask them what they think a decent salary might be, and break it down so they understand what they will need to make to achieve their lifestyle goals.
Creating and Following a Budget
Once you have a source of income, whether that is a part-time job or a weekly allowance, you need to address following a budget and making that income last. Sit down and ask your teenager to list all the typical expenses of an adult.
If they can’t list them all, add the things they forgot, such as home insurance, car insurance, utilities, and credit card bills. Help explain how to create a budget that covers all the major expenses and still leaves room for fun activities and purchases each month.
Building and Understanding Credit
A major problem for teenagers is not fully understanding how credit cards work. With more than 10 percent of American teenagers having a credit card while still in high school, it should come as no surprise that many have large balances and don’t fully understand the damage they are doing to their future credit.
Teach your children about how to use credit cards safely, but don’t give them their own while in high school. Financial expert Dave Ramsey says: “A teen with a credit card is only slightly less dangerous than a teen with a loaded gun.”
Saving for the Future
It is common for young people to only think in terms of the here and now. Even those who address things like creating a budget and stretching their paycheck until the end of the month may not think beyond a typical month.
It is important to impress on your teenagers the importance of saving for the future. Set a future goal that they can save for, such as a college education or a new car.
These are large expenses that will take years to accomplish, showing just how long this can take for adults. Teach teenagers about ways to prepare for retirement, and show how just small additions to an account each month can lead to an enjoyable retirement in 30 or 40 years.
It is important for teenagers to go into the world prepared to deal with issues of financial planning and management. These tips can help any parent to discuss these matters with their own child.