4 Interesting Things to Teach Your kids about Money
It is very important to teach your kids about finance at an early age to help them understand and set priorities. It seems just like yesterday my son was so small and gentle. Now suddenly, he is all grown up into a teenager. I have to teach him so many things to help him become an independent adult and make us proud parents. It is time for my kid (a teenager) to learn how to manage his finances.
The following are some of the ways in which you can build your child’s financial knowledge.
1. Help them understand the components of personal finance
The term personal finance has many branches on its own. You can start by helping them understand the following:
- Saving: Saving is important. Teach your kids not to spend everything they earn. It’s better to start the habit of saving a portion of their income the moment they get a job or pocket money. Reward your kid whenever they save.
- Spending-Teach your teenagers to account for all of their expenditures. Ask them to maintain a diary and write everything they have spent. If your child is using a smart phone they can use money saving apps, which can be easily downloaded on their phone. This will help them keep an eye on their spending behaviors and make them aware of areas they are spending unnecessarily.
- Investing-Teaching your kids how to invest at an early age works wonders. If done successfully, your kids might be able to fund their own education. To pique their interest towards different kinds of investments, start taking their financial advice seriously and involve them in your financial and investment planning.
- Charity– Inculcate the habit to give a portion of their income, as charity at an early age. This will not only make your child more considerate but also help in the nourishment and development of society.
2. Show them what a budget is and how it works
A budget helps in dividing money into different financial components. Like how much to spend, save, invest, and give away as charity. It is a great way to control the flow of money in different directions. For example, you can set your teen’s budget as follows:
- 20% of income towards savings
- 10% to a charitable organization
- 10% on investments
- 60% on expenses
Moreover, if they end up saving more at the end of the month, they can put the extra savings into investments. This is a great way of teaching them how to value money. For example, your kid wants to buy some expensive headphones, which costs about $500. If he is earning $300 per month, then he’s saving $60 per month (20% of income). So either he can save and wait 8 more months to get the headphones or spend less and save more to get them faster than 9 months. This way they will learn to set financial goals and cut down on expenses.
3. Show them how you manage your credit card debt
Teens should know it’s OK to borrow from the bank only if they are able to pay the full amount within the stated period. There should not be any confusion between borrowing from the bank and borrowing from parents. The consequences of not paying the bank on time could be severe. If payment is not made at the end of the statement period, they may have to pay interest. This is why a teenager with credit is considered as dangerous as a loaded gun (yikes!!). So if possible, teach them to take loans only when necessary or else it’s best not to borrow at all.
Here’s a neat tip, treat your kids to something nice when they pay off their credit card responsibly on time.
4. Explain what Identity Theft is
Identity theft is defined as illegally using another person’s personal information to take out a loan or credit from another institute such as banks. It is impossible to keep teens of this generation away from their phones and tablets. Chances are they will shop online many times. It is your responsibility to protect your teen’s finances. Make sure they don’t fall for any hacking or identity theft scams. Check their financial transactions within their bank account, credit report, etc. at regular intervals throughout the year.
To Sum it up
As the proverb goes,” The art is not in making money, but in keeping it.” It is hard to teach teens to save or even motivate them to earn. It is that age where human beings want to explore around and try new things. All of which requires expenditures. Enhancing your kid’s financial knowledge will encourage them to save and make long-term savings goals. You will be surprised to find them spending money carefully, being responsible towards their studies and improving their grades in school.
James Paul is a personal finance blogger who writes at Basic Finance Care covering everything about personal finance management and frugal living.
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