The unfortunate reality is that many teens pass through into adulthood without receiving any type of financial education.
As a result, they are woefully unprepared to manage their finances and often make foolish decisions in their young adult years.
Personal finances are not typically taught in a formal classroom setting at school, so children and teens learn everything they know about money through their parents.
As a parent, it is important that you educate your children about finances throughout their lives. These are five steps you can take to provide you kids with the solid education they need in personal finances.
Provide Early Savings Lessons Through an Allowance
In their elementary school years, kids can learn how money is earned. It does not simply grow in a parent’s wallet. Instead, it is earned through hard work. Give your children chores to do around the house, and reward them with an allowance. Talk to them about how to allocate their allowance properly toward spending, saving, investing and even charitable giving.
Talk to Kids About Saving for Expensive Items They Want to Buy
Delayed gratification is an important financial lesson to learn. The ability and mentality to save for expensive items that are desired can help your children to avoid taking on debt unnecessarily in the future. After all, impulse buying can drive up credit card balances. If your children want toys, games or other items, it is important that you make them earn the things they want to buy by saving up their allowance.
Educate Teens About How to Create and Balance a Budget
If you want to teach your kids to be financially literate, they need to know how to create and balance a budget. This may be a lesson that is better completed when teens are older and start having expenses. For example, a teen may need to pay for car insurance, gas for the car and more while earning income from a part-time job. However, even younger kids can see a division of their funds by creating a budget that allocates some funds for saving and some funds for spending. Balancing a budget is a critical aspect associated with financial well-being.
Show Kids How to Invest in the Stock Market
Investing is another important step that children can learn at a rather young age. As a parent, you may contribute some of your own funds into a share builder investment account. This is an account that regularly drafts a small amount of money from your checking account, and the funds are used to purchase partial shares of stocks. Kids can be taught how to pick stocks and when to sell them. In their teen years, your children can invest their own funds in their stock account.
Demonstrate the Differences Between Assets and Debts
It is important for children to learn the difference between assets and debts or liabilities. Debts and liabilities cost you money, and assets can increase in value. One item that many people mistake for an asset is a car. A car depreciates in value and costs money to own and operate, so it is a liability. Buying assets rather than focusing on liabilities will help your children to build wealth over the years.
As you can see, there are critical steps you can take throughout your children’s lives to teach them about personal finances. The lessons can begin at a young age when you provide them with an allowance, and the lessons can become more pronounced and detailed when teens have their first job and real expenses to pay for. By taking these steps, you can help your child to be more prepared to manage personal finances as a young adult.