All parents agree that they must raise their kids to be successful and independent adults. Accomplishing the noble task, when it comes to imparting financial acumen to the kids, however, remains a challenge.
Sometimes you do not know if your kids are old enough to understand financial issues such as the value of money, the need to work to earn money, and how to save it. Probably you fear that if you discuss the matter, you might make your kids attach too much importance to money at the expense of other vital things in life, as most adults do.
On the other hand, it’s understandable that you do not wish to expose your children to your financial woes and to the agony of making sacrifices for a secure future. As a parent, you need to arm yourself with these tips to guide your child through the principles of financial security.
Why you should discuss money with your kids
- To teach them to plan for cash
Kids can pile up a tidy amount of money from various sources. These include the allowance you give them, earnings from chores, and gifts from relatives. It’s normal for a kid to focus on instant gratification especially where the accumulated amount is adequate to purchase a coveted item.
Once your kids start handling money, you should teach them how to draw priorities in life. They may not grasp the value of money at their tender age. In that case, use real-life illustrations of actual items showing how much they cost at the mall so that they understand the value of money.
Now guide your kids in identifying needs and luxuries. After that, help them to create a budget for their savings. Once your children realize they need to delay gratification and save for essential needs as well as dream toys, they have begun their journey into financial discipline.
- To help them understand borrowing
Explain to your kids that sometimes the need arises for borrowing money to meet some financial obligations. Even then, kids still need to realize that working hard and savings aggressively is an avenue of preventing oneself from sinking into debts.
While explaining about loans, use an example the kids can understand, such as borrowing money for a new gadget. Ask them to imagine that they borrowed money from a sibling or a friend to pay it back after a while.
Upon returning the borrowed amount, tell your children that such an arrangement would require them to throw in some extra amount as an appreciation for the realistic loans. Such would help them understand about interest rates later on.
Now relate that explanation to why one needs to borrow money for expenses like buying a car, a house or a mortgage, for advanced studies, and even for vacations. As time goes by, explain to them the concept of debit and credit cards. Do not forget to highlight the consequences of defaulting on loans.
- To educate them on their rights
From the teen years onwards, teach your child about the protection that financial agreements offer to them as consumers. Let them also know how to exploit money-saving plans such as discounts and offers on purchases.
Encourage your children to get value for their money and to avoid spending what they don’t have to spend. If you feel that your skills are inadequate to provide such information in detail, you can explore authoritative online sites and offices for guidance. Some organizations have information for young consumers to help them understand money concepts.
- To teach them their responsibilities
Naturally, you will begin your money discussions with your children by showing them about how money improves their own lives. Nevertheless, as a responsible parent, you ought to educate your children about their financial obligations towards others.
As they grow, introduce the concept of them donating money towards charitable causes to help the less privileged. Prepare them for adulthood obligations such as providing for their own families and paying taxes. Help them understand the implications of evading such responsibilities.
- To educate them to keep their money safe
Your kids need to learn about scams and personal carelessness that lead to financial losses. Depending on their age, educate them on the need to work diligently and legally to earn and conserve their financial resources.
When should you begin talking about money with your kids?
You should be open and discuss money with your children from as early as the age of four or five years. The discussion continues in varied forms, but for the same reasons, throughout their lives.
Help them understand that no family has limitless resources. Even the affluent have to avoid extravagance and plan for their wealth. Explain to your youngsters about delayed gratification.
Beyond the age of six, you can have your kids accompany you to the grocery store to enable them to understand what money can buy and to see the principle of budgeting at work. In future, allow them to participate in the making of the family budget.
During their teenage years, discuss with them the importance to save for life goals such as higher education or buying a home. In the coming years, encourage them to explore saving and investing plans for both short-term and long-term goals.
Explain to them about building a fund for emergencies such as accidents, losing a job, and other calamities that could lead to loss of an income or require extra expense. Be diligent in raising financially wise children.