Despite the boundless information online, the best way to learn about money is to follow the footsteps of past generations, when people spent less than they earned and saved for big purchases. It’s important for parents to instill responsible money habits so their children can succeed in the future.
Here's six tips to help teach your kids about finances:
1. Communication: The Council for Economic Education’s Survey of the States, Economic and Personal Finance Education in Our Nation’s Schools 2016 study reported that only 17 states require high school students to take a course in personal finance.
Parents shoulder the responsibility, but many simply don’t discuss money with their kids. Without open communication at home, kids may not learn the value of a dollar.
2. Wants/Needs: We live in an immediate gratification world where the line between “want” and “need” is blurred. Ensure your kids understand the difference – and take care not to indulge their every whim – to raise kids with the discipline and patience needed to fight off the temptation to rack up credit card or excessive student debt in the future.
3. Budgeting: Show your kids how to budget their money, making sure you include line items for savings and even charitable giving. A physical budget is an invaluable tool in teaching them to allocate their dollars, measure their progress toward large purchases, and ensure they spend less than they earn.
4. Practice: Provide your kids with a regular allowance, encourage them to get a job, or offer frequent opportunities to earn money at home. Allow them to practice the lessons learned by funding their own “wants.”
Children will quickly learn how much things cost, how money is earned, and the importance of budgeting and saving. Give them a chance to make mistakes, too, to learn valuable lessons.
5. Financial Accounts: Take the lessons a step further and help your kid set up a savings or investment account. Older children and math whizzes will be fascinated by compounding interest, which may boost their motivation to save more.
6. 50/50: Today’s kids are growing up in a high-pressure consumer culture, and parents often give in to their desires for clothing, toys, gadgets and entertainment.
It’s important to give children the opportunity to put skin in the game to reinforce the value of money and bolster their financial ability. To that end, many parents arrange a 50/50 or matching-funds agreement with their kids for big-ticket items like a car, a vacation or even college tuition.
For more information about budgeting, credit counseling, debt management or student loan repayment, visit takechargeamerica.org.
Michael Sullivan is a personal finance consultant with Take Charge America.