Sometimes lost among the “big conversations” parents must have with their children is the one about the value of money and how to obtain good credit. Teaching children the importance of being frugal may be even more important these days than ever before. Whether the child wants to buy the latest video game or a used car, realizing how much it will cost and how to save for it will be a lesson they will never forget.
Tips for teaching kids about money
There are many different strategies parents can use to teach children the importance of spending money wisely, from an actual sit down chat to using real-life examples.
*Every day events – Shopping for groceries, paying bills or planning a family vacation are all opportunities to teach children the value of money. Explain why certain items are bought while others are not, how monthly payments come into play and why Disney cannot be visited every year. Young children may see parents withdrawing money from an ATM and expect that can be done at any time. Explain to them where the money comes from. The same should be done for any household using checks.
*Savings – Get into the habit of saving a certain portion of income each month into an account. Teach the children to do so also, even setting up a savings account for them. Encourage them to deposit a portion of any birthday or holiday money they receive, rather than simply spending it on the latest toy that catches their eye. Later, they might also help contribute to a college education fund.
*Budgets – Explain to teens and young adults the importance of a budget, which should include income and all expenses. Stress the importance of paying bills on time and planning ahead to make sure enough money will be available. By learning this early in life they will be better prepared in adulthood.
*Good versus bad – Teens and young adults should also be taught the difference between good and bad credit. Going into debt should be reserved mostly for large purchases, especially those that will appreciate in value such as a new home. A car may fit into this category, too, even though it will depreciate. Bad credit would include credit card debt accumulated by purchasing luxury items that are not needed.
*Set goals – Telling a child, especially a young one, to simply save money may be a bit of an abstract thought. Have them work toward a goal, such as a special purchase they have been wanting. When they want to splurge on a different item they see, remind them of their goal and that splurging will delay achieving it.
It’s never too early to start teaching children the value of money and good credit. The lessons they learn from those experiences will carry over into adulthood and help make them financially secure.
This is a guest post from Katherine Watkins, who writes for a site that offers advice about home equity loans and home equity lines of credit. Katherine believes it’s important that parents teach their kids to have a responsible attitude towards money so that they are able to manage their finances wisely when they become adults.
