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Teaching Kids About Their Finances
Dated: October 26 2020
Steps to teach your kids some core life skills so they aren’t caught by surprise when they get into the adult world!
Finances are highly personal, and budgeting comes down to living within our means. Whether you’re an expert in spreadsheets or just getting started yourself, you can teach your children how to track their expenses, set a budget and stick to it.
A great place to start is with a weekly allowance once they are able to count and have grasped the concept of money. This way, finances are part of the conversation at a young age.
Experts agree that children should earn at least part of their allowance and that they should be offered additional opportunities to increase their earnings. Be sure that you require a portion of each allowance to be put into savings for a future purchase.
Most adults were not taught about credit cards which explains why Americans have an average credit card debt of $6,194. However, we can help our children to understand that credit cards are a financial tool that can help to build their credit and that misusing credit cards can wreak havoc on your financial life.
Kids grow up thinking that adults simply swipe cards or tap screens in order to make goods appear. Teach them that every credit card transaction is tied to a loan that has to be repaid. The balance can be repaid at once and a history of responsible credit card payback improves your credit score.
The balance can also be repaid over time and the longer it takes to repay the loan, the more interest will add up. It’s also important to note that creditors are not patient and that if a payment is missed, there are additional fees and the late payment is reported to credit bureaus which can lower your credit score.
Another valuable lesson you’ll want to share with your kids is about interest rates. A simple way to illustrate how to earn interest is to pay them interest on the portion of their allowance that they save and then to compound that interest every month.
You will also want to teach them how interest works as a loan. You can do this by including them in planning a night out and agree to share costs. If the night out is $20, work together to negotiate how it will be paid back. For example, a one-time payment of $20 or four payments of $5.25 that includes a 5% interest fee.
Teaching children about money at any stage is going to take time on your part. It won’t always be easy. But if you want your children to know how to successfully manage their money when they get older, taking the time now will be worth it.
One of the best ways to teach your kids about handling money is to give them a chance to make some of their own!