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Personal Finance Parents Should Teach Their Children

Teaching your children the ways of life is the essence of parenthood, and part of this is teaching them how to be efficient in personal finance management. Don’t worry; you don’t have to do an all-out lecture on finance and economics.

kid saving money

Here are some simple tips parents can do:

The first is to set an example.  Children learn from what they see. If they see you taking charge and saving money for yourself, they will follow it soon after.

The second is to patiently explain.  The kids may not get what you are doing, so it would be best to explain things step-by-step.  Take advantage of the child’s natural curiosity and make them understand why saving money is always best.  Have the patience to explain things on their level by using simple words or by showing them how to do it.

The third is to use tools.  Employ the use of coin banks or piggy banks.  A great way is to let them design their coin bank according to their preference.  Let them personalize it so they feel more motivated to use it and save money.

Fourth, harness the power of motivation.  Children are the easiest to motivate.  The trick here is to know what motivates them and to use that piece of information to your advantage.  If you see your children get motivated by the prospect of a new toy, you can tell them they can use the money they saved to buy the toy they have been eyeing.

Fifth, let the children do it themselves.   As parents, it is always a struggle between the heart and the brain during times you need to teach your children a valuable lesson.  It is only a parent’s instinct to go in and help, but there are some times we should get a hold of ourselves for our children’s sake.   The temptation to add to their savings so they can buy their new toy is very huge.

Wouldn’t parents want to see that smile on their child’s face?  Yet, we should always put in mind the value we are trying to teach and refrain from doing so.  Later on, when we see the kids become financially-stable adults, then will we realize the importance of letting the kids learn for themselves.

The sixth tip is the most important.  Stay true to your word.  If you said the money saved will be used to buy a new toy, so be it.  Using it for another, other than what was promised will only give a bad impression.  This may result in your kid not wanting to save anymore.  Do keep your word.  Receiving their expected reward will only add to their drive to save more money in the future.  Plus, your children will come to learn that you keep your word and that saving money has its rewards.

Indeed, teaching your children how to save money is the first step towards effective personal finance management in the future, and ultimately results in financially-stable adults. Everything must always start at home, so make sure you will be able to teach your children well.

Start Early and Teach Your Children Well

Today more than ever, we need to develop a sound practice of developing the habit of saving. As a country, we were far more disciplined a few decades ago than we have been in the last decade. Some may take comfort in realizing that we aren’t alone. In the United States, the economy collapsed spectacularly just four years ago, mostly due to excessive consumer debt, fuelled mostly by a bubble in the housing market. It caused many people to thoughtlessly borrow more money against their home, and when prices started to deflate, they found that they owed more money than the house itself was worth it. A wave of repossessions followed.

Fortunately, Great Britain has not had quite the same experience. But there is no doubt that we are also going through a recessionary period, which does not seem to want to go away. As a result, unemployment is higher than it should be, and those that are employed often worry about their jobs with understandable concern. It is important to continue the trend that began over 40 years ago, which is to maintain an average savings rate of just under 10% of disposable income. This will provide households with a cushion against unexpected expenses, even providing some additional retirement income down the road.

Our Children Watch Our Every Move
If you have children, you already know a simple truth. Especially when they are very young, our children pay constant attention to how we act, how we behave, and what we do. It is truly one of their primary sources of clues as to how they should mold their behavior. While every parent has a different style that they use to teach their children, one thing that they should always do is teach them the importance of frugality and saving. Regardless of where savings interest rates are at any particular time, it is a life lesson that they should learn as early as possible.

Obviously, the concept of saving is lost on any child who has not at least reached 10 to 12 years of age. They can’t truly understand the concept of money until that point, and any conversations on the subject will fall on deaf ears. But after that, parents can lead by example, by setting up savings accounts for each of the children, and either depositing a little money every month or actually having the children deposit a portion of their allowance or any other income they receive from doing odd jobs into the account. This way, they develop a habit that can serve them for their entire lifetime.

Many adults who did not receive this valuable model from their parents regret not having been brought up that way. They may find themselves in middle age with little or no savings, due to bad spending habits and poor financial planning. They may in fact decide to take their own life lessons and teach their own children a different way to handle their finances.

What Kids Need to Know About Money

Teaching a kid about money is very significant. It helps the kid to be responsible and have self-esteem. It also enables a kid to know the best way to spend the money that he or she has earned wisely. Below are some things that a kid should know about money.

1.  Saving from income

A kid needs to develop a habit of saving. The best approach is to advise a kid to save at least 10% of his or her earning.

2.  Don’t borrow more than what you can pay back

Debt is one of the leading causes of depression. It is important to let the kid know that one must pay back what he or she borrows. It is also important for the kid to know that debt can make him or her to be anxious and stressed. These are some of the causes of heart problems and a lack of self-esteem. Let the kid understand why an indebted person is unlikely to get rich.

3.  Giving out is getting more

It is important to let your kid know that managing money is not the same as hoarding it. The kid should know that money has to be spent wisely and with a purpose. Let your child understand that donating money for a good course is a noble undertaking.

4.  Money is not evil

There is a common saying that money is the root of every evil. You should ensure that your child is not imprisoned by this say. Money has brought good things to human life. They include the creation of wealth, investing in business, and donations to charity organizations.

5.  Spend less lose less

One of the earliest philosophies about wealth creation is “it takes money to make money”. However, it is also possible that it takes money to lose money. It is important to let your kid understand the value of money and the need to be cautious while getting into business deals.

6.  Get the best price for everything you can

What defines one’s financial help is the amount he or she earns as compared to the money that he or she spends. Let the kids also know that by bargaining it does not imply that one is a miser.

7. The fast buck is your last buck

It is important to let your kids understand the importance of creating wealth. However, let them understand that it is a lifetime process that is based on common sense, discipline, and hard work.

Just go one step at a time, laying the groundwork for a good grasp of how money is earned, used, and saved and honing your child’s ability to make smart financial decisions. I promise your child will be better off for it!

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