This post today comes to us from a friend, Good Nelly, and is closely connected to a recent Ted Talk that I shared on the topic of Teaching our Kids about Money. Thank you Good Nelly, enjoy….
According to a recent CNBC report, consumer debt in our country has hit a new record of $14.3 trillion. Can you imagine?
One of the major reasons behind this skyrocketing consumer debt is the lack of financial literacy. Many of the people in our country don’t know how to use their credit lines wisely. Eventually, they fall prey to the debt trap.
Do you want your children to have financial burden throughout their life? I believe your answer would be a big “NO”. And there lies the importance of teaching personal finance to your kid right from the tender age. By doing so, it will help the child to grasp the basic facts easily, and eventually, he or she can develop the habit of handling finances in the right way.
Here we have listed some of the best possible reasons why you should teach personal finance to your child.
To explicate the habit of saving money
Saving money is an integral part of personal finance. Also, it’s a stepping stone to lead a financially stable life ahead. So, you should teach your child the art of saving money right from a young age.
For example, when you go shopping with your kid, he or she might demand toys or other attractive things meant for young children. Instead of fulfilling his or her demands, you can make the kid understand that he or she needs to have enough savings to spend on discretionary expenses.
To make this more simple for the kid, you can take three jars at your home and label them as “savings”, “expenses”, and “give”. Now, whenever the kid receives any money, ask him or her to deposit (even if it’s nominal) in these three jars.
If the kid wishes to buy something, make him or her understand to consider it a goal and save for it first. However, you need to make sure that the kid is not setting an unrealistic goal that can take a considerable time to accomplish. Otherwise, the kid might feel disheartened and lose interest in saving money.
To help the kid for spending money wisely
Teaching personal finance to your child can help the kid to make wise spending decisions and thereby, it can help him or her to live within a budget as well.
So, when your child attains the age of around 10, you can start giving him allowances. By doing so, the kid is going to have his or her own money to make spending decisions.
However, I would suggest you don’t give allowances to the kid as “free money”. You can ask your child to help you with some household chores and in return, you can give him or her allowances. Thereby, the child will understand that money needs to be earned. So, the kid will start valuing it and eventually, he or she won’t indulge in splurging.
Besides, I would recommend you to involve your kid in your small financial decisions. It will help the kid to learn from you and share his or her views too.
Also, you can make your kid understand not to spend money on everything he or she wants. Rather, the kid should focus more on the things that are needed and important. Thereby, it will help the kid to make more smart and precise spending decisions in life.
To instill a habit of using credit responsibly
Are you planning to make your child an authorized user on your credit card? If so, that’s a good idea to help your child to build a good credit history from a young age and availing attractive cash backs. But at the same time, you have to make sure that the kid will use the credit card wisely.
When you go shopping with your kid, you might pay your bills by swiping your credit cards. Let me tell you, children are great observers. They observe their parents and try to follow them. Your child might think that credit cards are free money and one can buy anything by just swiping those cards. If the kid grows up with this misconception, he or she may fall prey to credit card debt in the future.
So, you need to make your child understand that credit cards don’t offer free money. You have to repay the credit card bills after the billing cycle is over. If possible, you can take your child with you when you make payments for your credit card bills.
Besides, make your kid understand to charge affordable amounts that can be repaid easily. By doing so, he or she won’t have to pay interest and refrain from falling prey to credit card debt too.
However, as a responsible parent, it’s your duty to teach your child the way-out if somehow he or she racks up credit card debt. So, make the kid understand how credit card consolidation helps to repay debts with ease.
To introduce the kid to the power of investing
Hopefully, your kid has learned the art of saving money. But you know that only saving money won’t work for building wealth. While teaching personal finance, you should teach your child about investing money to create wealth for a better future ahead.
To make it simple, you can make your kid understand the concept of compound interest. Besides, you can introduce the kid to the free financial tools on Investor.gov to get a better idea. By using these tools, the kid can get a rough idea of how much he or she can earn by investing a certain amount with a certain interest rate. Eventually, the kid can understand the power of investment and he or she might start investing money soon.
So, the bottom line is, imparting personal finance lessons is a great way to prepare your kid for the road to success. Don’t feel hesitant in talking about finances with your child. Break the barrier and start talking about money with your kid right from the tender age. It will help the kid to develop good money habits easily and create an openness to discuss finances.
At the same time, make sure to practice what you preach. Only imparting personal finance lessons to your child won’t work. Being a parent, you should maintain good money habits and set a role model for your child.
What do you think?
Author’s Bio: Good Nelly is a financial writer who lives in Milwaukee, Wisconsin. She has started her financial journey long back. Good Nelly has been associated with Debt Consolidation Care for a long time. Through her writings, she has helped people overcome their debt problems and has solved personal finance related queries. She has also written for some other websites and blogs. You can follow her Twitter profile.
I am a finance professional with over 20 years of experience and very passionate about all topics related to finance; enjoying the aspect of teaching and educating others along the way. All in all, I will show you how big this money tree can get over time as I get the branches (Earn, Save, Invest) as high as possible…Click here to see my financial progress to date: How high is the Money Tree?
