12 Easy steps to prepare your kids for their financial future
Kids rely on instruction and guidance from their parents in life. Unfortunately, many parents take the approach of concealing their finances from their kids. It’s understandable; they don’t want to place financial pressure on their kid’s minds, especially if money is tight in the household.
Unfortunately, this strategy is a mistake. Failing to teach your kids about money means they grow up with no practical financial literacy. Money is an important part of life. Whoever told you that money isn’t the only thing in life – doesn’t have any.
The reality is that teaching your kids the value of money and the importance of managing their finances is critical to their development. Without the right guidance, they are likely to grow up spending everything they earn without a second thought to good financial practices like saving and investing.
Savings Strategies for Kindergartners
Your child’s financial education starts as soon as they enter kindergarten. The sooner you teach them the value of money, the better.
1. Create a Savings Jar
Take a large clear yar and carve a coin slot in the top. Add some super glue around the inside of the lid rim, and seal it to the jar so you can’t open it.
By using a clear jar, your kids can see their savings grow, providing a powerful visual that builds momentum. You’ll find that your child can’t wait to stuff every coin they receive into the jar. When it’s full, crack the piggy bank and let them spend their savings on something they want.
This strategy teaches them the rewards of saving.
2. Lead By Example
According to the University of Cambridge, kids start developing a concept of money around age seven. If you haven’t started talking about money to your kids, or worse, you argue about money with your spouse; they’ll form negative connotations around the topic of money.
Set a good example with your finances, and teach your kids something new about money every other week to build a strong financial foundation in their minds.
3. Teach Your Kids the Value of Dollars
When your kids crack their piggy bank, make them carry the change to the bank. Let them stand in line and ask the teller to count it into bills.
Then, take your kid to the store to get their favourite toy, and have them hand the money to the teller at the checkout. This action helps them understand the value of dollars and the importance of exchange.
Savings Strategies for Teenagers
4. Teach Opportunity Cost
Chances are your kid will want to cash out their savings for goods that cost considerably more than what they have available to them. Teach them the value of living within their means.
If they want those new Jordans and that PS5, tell them they can have one or the other, that’s all they can afford. This action teaches them the principle of opportunity cost and the value of their savings.
5. Skip the Allowance
Many parents give their kids an allowance. However, this is a bad idea as it teaches your kids they can get money for doing nothing.
Instead, set up a schedule of chores with a dollar amount attached to each task, and pay them a “commission” for finishing the work. This tactic helps your kids understand the value of their labor and what they have to do to earn more.
6. Teach them How to Avoid an Impulse Buy
Every parent experiences their child begging them for a new toy or product when they are out shopping. By rejecting their request, you teach them the value of avoiding an impulse buy, helping them make better buying decisions.
7. Teach Then Finance with Technology
Todays, kids grow up with cellphones in their hands. There are dozens of personal finance apps available in the Google Play and Apple App stores. Let them download Mint or a similar app, and teach them how to use it. It’s a powerful tool presented to them in a medium they understand.
8. Open a Bank Account
When your child turns 13, take them to the bank and have them complete the paperwork for opening an account (you’ll have to approve the facility for them with the bank).
This action is powerful, giving them their first financial vehicle for managing money. Spend some time educating your child about what they can do with their bank account, and teach them how to use the online banking feature.
9. Saving for College
As your children progress through their teenage years, impress upon them the importance of saving. Tell them they have to pay for their college themselves, and they need to work to earn money for their school fees.
When your child graduates, they will have a healthy savings amount that you can bolster with your funds to get them into college, avoiding the dreaded student loan. If your child doesn’t display academic ability, they can use their money to start a business.
10. Teach them the Responsibility of Credit
When your children turn 18, they’ll start receiving offers for credit cards from financial institutions. Teach your kids about the dangers of credit with practical examples they can understand. For instance, explain the bankruptcy process and how their credit score will impact their financial future.
11. Understanding Compound Interest
If your children understand the power of compound interest, they are more likely to keep their savings rather than spend them.
12. Teach them the Power of Earning an Income
When the summer rolls around, tell your child to get a job. Let them investigate forms of employment and educate them on the power of earning an income. Earning an income is even more important than saving.
Explain the difference between high-paying jobs and minimum wage positions, and show them the pathway to making it out of the rat race through education or starting a business.
In Closing – Prepare Your Kids for Their Financial Future
These simple strategies have powerful effects on teaching your kids the value of money. The reality is it’s never too early to start teaching your kids the importance of financial responsibility.
Financial literacy is key. Buy your kids’ books on financial literacy written by authors like Robert Kiyosaki (“Rich Kid, Poor Kid” is a great example). After they finish reading the book, have them prepare a report on what they learned and reward them for their interpretation of the knowledge.