Helping your child get their financial footing is a lot like teaching them to ride a bike. When you first start out you’ll need to give them lots of help and guidance.
The older they get, the more confidence they’ll have and the better they’ll be able to keep their financial balance. The ultimate goal, of course, is to have them become financially independent.
There are lots of ways to get them headed in the right direction. Here are some to consider:
- Help them understand needs versus wants. Their needs include essential things such as food, clothing, and shelter. On the flip side are their wants – a new cell phone, a puppy, a new car. Explain that “needs” should come before “wants” when dealing with finances.
- Set the example when it comes to living within your means. Don’t overspend and don’t buy things for the sake of having them. Kids pick up quickly on your habits and will usually mimic what you do.
- Teach them the importance of creating a budget and sticking to it. This includes explaining income and expenses and striking a balance with the intent of incurring little or no debt. Show that a budget is one of the most important financial tools at their disposal, and that it should be relied upon and updated on a weekly or monthly basis.
- Let them pay their way. As your child gets older and starts incurring regular expenses – cell phone usage, car insurance, gas – have them contribute toward paying these expenses. It makes them aware of how much things cost and gives them a better appreciation of what you’re paying for. It also allows them to take another step toward their financial independence.
- Don’t’ give your kids everything they want. Whether they’re a toddler or a teenager, you should explain when you think something they’re asking for is unnecessary or isn’t within your budget.
- Encourage children to get a job in their teen years. From part-time work during the school year to a full-time job during the summer, having them earn an income is an essential part of their road to independence.
- Discuss credit cards with them. Teach your child the proper way to use a credit card, gain a credit history, and maintain a good credit score. This means paying your credit card bill in full every month. Explain to them that if they only pay the minimum due, they will incur interest charges that will continue to pile up until the balance is paid off. In other words, they’ll be living beyond their means and creating debt that could become unmanageable. On the other hand, if they establish a good credit record, it will pay off when they go to get a loan for such things as a car or college tuition, because lenders will be more inclined to provide funds based on a solid credit history.
- Don’t let them ignore bill due dates. Teach your children the importance of paying their bills on time – another factor that comes into play as far as maintaining a good credit background.
- Teach them to save! Explain to them the importance of putting aside funds in a savings account on a regular basis. Then take it one step further and allow them to start saving at an early age. Many banks and other financial institutions have special savings accounts designed specifically for youngsters, as well as for kids in their teenage and college age years.