Being a parent is no mean feat. It’s one thing fathering or mothering a child, it’s another taking care of them and teaching them how to succeed as responsible human beings. Of all the lessons children can learn, none will prove more valuable than sensible financial management. There are effectively two types of people: spenders and savers. Sure, most of us are a hybrid, but we all have a tendency towards one or the other.
Kids learn a lot of their behaviour from their peers, their parents, and the media. However, as primary caregivers, we can cultivate a responsible financial management mindset in our kids that will serve them well throughout their lives. Here are 5 financial management habits that your kids will thank you for in later life. Sound financial management allows your children to become fiscally responsible, and financially independent. There is another benefit to teaching your children effective money habits: You get to enjoy more of your retirement money when the time comes.
It’s a win-win situation for everyone!
- Teach kids the value of money
Everyone tells their kids that they can’t have whatever they want, because money doesn’t grow on trees. But kids don’t always understand concepts such as money because they expect their parents to provide for their basic needs. The media feeds them with a relentless barrage of advertising, fostering a buy-now culture in society. This impulse-driven behaviour can be overpowering, and it’s up to parents to step up and lead by example. It is always important that parents don’t spend recklessly and then tell their kids that there is no money available for whatever they want. Kids understand the disconnect; they see the hypocrisy, and they will not react well. Instead, parents should adhere to strict financial discipline, and the kids will soon toe the line.
- Put those credit cards away
Surveys indicate that kids believe that anything their parents need can be paid for by running a piece of plastic through a machine. This credit card culture has been designed that way to make it easy, convenient, accessible, and user-friendly. However, parents should explain that credit cards are linked to bank accounts and all money must to be repaid. The concept of a budget is a difficult one for a child to understand, but once they do it becomes clear. By explaining that credit card debt needs to be repaid plus interest, kids will soon understand that they don’t want to be paying more of whatever they have available from their pocket money than the item is worth. By giving a child a weekly or monthly allowance, you are inculcating him or her with the right mindset to budget correctly.
- What is really needed?
Many people think that they need everything, but truthfully, they just want most things. We need food, shelter, education, healthcare, and clothing. We want to go to the movies, eat ice cream, fancy shoes and an expensive vacation. As soon as kids understand what is really needed, they will be more inclined to stop being wasteful and start saving more cash. It is a good idea to allocate money towards savings, charity, and expenses. The precise ratios that work in your household are up to you. Some people prefer to save 40%, spend 40% and donate 20% of their income.
- Be responsible when discussing money in the house
Children hear all and see all, even if they don’t understand the concepts under discussion. They will quickly associate emotion with things like money and understand that money brings arguments into households if parents are continually fighting about it. Therefore, it’s important to develop positive discussions about money by being responsible. Extremes such as there is no money, or we’ll never buy that, or that’s never going to happen should be avoided. The best way to approach money-related issues with big-ticket purchases is the following: Let’s work towards that by being responsible, saving, and planning for it. You could have your kids performing chores around the house, and paying them for these duties, or for doing well on their report cards, or on birthdays and holidays. It is always a good idea to encourage saving with your kids.
- Use a chart to explain the concept of a budget
Sometimes kids don’t want to listen, or they are just not interested in adult speak. But when we show them something in a visual format with colours and explanations, they are more likely to pay attention. A good idea to teach kids about budgeting and finances is a pie chart. If you earn $60,000 per year, that translates into $5,000 per month. Next, show a pie chart of all your expense items including rent/mortgage, utilities, education, food, entertainment etc. Kids will soon understand the concept of a budget. Kids can even be encouraged to add expenses up to determine how much disposable income is left on the monthly budget. This is how you cultivate a responsible financial mindset.
By following this advice, your kids will be well prepared for making sound financial decisions in the future.