A Fundamental Guide to Your Child’s Financial Literacy
March 19, 2018
Teaching your children about finances early on will aid in a more sensible financial adulthood. Though you are your children’s best guide, having your own how–to that offers actionable items helps to truly make it happen. Here are some tips on boosting your offspring’s financial IQ.
A Finance Mentality
The power of a fiscal mindset sets the tone for an optimum financial future. Start with positive monetary affirmation & talk openly about money. Parents have historically treated discussions of money as if they are taboo. Start with digestible morsels, no need for long lectures about the S&P 500 just yet. Speak about your values concerning money. Clarifying the differences between needs, wants and wishes around your kids will put you in a position to lead by example. Children are observant and will begin to pick up more with repetition and age. Begin instilling principles as early as possible, this way mental preparation will give them the upper hand with self-discipline & the ability to make wise financial decisions.
Keeping a Pulse on Your Finances
Checking in on your financial situation is essential to show kids that you can have full control of your financial health. Luckily there are an array of apps, websites and other tools that aid in making this efficient and worry-free. Start with staying on top of your personal annual financial plans. Allow your kids to be a part of your monitoring activities. Examples include: Showing them how you monitor your credit, assets & liabilities through apps or websites Taking them on trips into banks Let them watch how you use an ATM Tagging along in meetings with your financial advisor Knowing where you stand financially will put you in a better position to address any potential trouble spots in your annual financial plan moving forward in addition to building a healthy habit for your kids.
Proper Budget Awareness & Preparedness
One of the most important habits you can teach your kids is to budget. This will help them track money, identify spending patterns & keep good records. You must walk the talk and create & employ your own budget. Show them that money doesn’t always evolve into getting everything you want and there are pros and cons to not following a budget. You can also start with a “training wheels budget” that entails giving them or let them earn money (fake or real for older kids). When taking them along to shop, let them know they have to use their own money. Create a slight sense of deprivation by providing them examples like “How many toys can you buy right now vs. saving for a bigger toy?” Also “You spent all your money on that toy & now you have nothing left over for ice cream.” This will help them to avoid impulses and become more mindful that they cannot always get what they want.
Adhering to your budget can only go so far if you aren’t buying smart. Along with following your budget, teach your children how to conduct research before making major purchases. Show patience by waiting for the right time to buy, and using the "spending-by-choice" technique. Help them see through the marketing smoke and mirrors like product offerings that are not truly “on sale” but are marketed as such. You may also want to have them keep an eye out for product & service value, quality, repair ability & warranties.
Credit Score Awareness
As an adult, you know your credit score is an important part of your financial picture. Educate your kids about how creditworthiness affects the way you borrow money, negative or positive impact on pricing & terms. Help them understand:
- Dangers of borrowing and paying interest Benefits for rates on cell phones & housing Verifying Charges Guarding against credit card fraud Career and security clearances
Go over hypothetical situations like “Do you want that self-driving Tesla?” You can lead them down the journey on how to achieve those goals having either good or bad credit. Chances are they’ll want to stick to the better opportunities and deals that come along with having good credit.
Contribution to Funds
When you are young, time is on your side. Get your kids on a productive financial path that will put their money to work. Share any investments you contribute to (401K, Roth IRA etc.) and show any increases. You can how also show how fast money accumulates through the power of compound interest. You can take a trip to a credit union or bank to open their own savings accounts. If they already have one show them growth of existing account. Create an opportunity for them to grow their own equity. You can base this on age and allow opportunity for allowance increases. Encourage your kids to save and give. Allowing them to either save their own earned money or even help pick a charitable organization for your family to donate to will give them that sense of authority and power. This will entice the desire to contribute to multiple channels in their future.
Uncle Sam Is Real
Taxes are inevitable and your children will encounter them early in life regardless if they know it or not. It’s trivial to teach them why there are taxes, who they benefit and how they’re collected. You can review things in life that are contributed from taxes like trash pickup, city landscaping & street maintenance. As they get older you can educate them on all different types of taxes (city, work, business & gifts). The most common tax they will encounter will be sales tax. This would be the easiest to show as an example when practicing your budgeting and savvy shopping skills at the stores or restaurants. Helping kids understand the essentials of taxes will in return prepare them for a shared responsibility for the essential public goods that their taxes will someday support.
Practice what you preach and take advantage of little teaching moments. Ultimately, it’d be less hassle for you & your child. It’d also help them out you door (financially speaking). Educating, motivating, and empowering children to have a positive financial well-being will a great advantage for you & your entire family.