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Being a parent is all about teaching your kids how to navigate this brave new world they’re living in. While school has reading, writing, and arithmetic covered, many kids learn crucial life skills from their parents. One of the most important things children need to learn is how to handle money. You won’t always be around to feed them their weekly allowance, after all, so it’s crucial that you instill the right type of attitudes and approaches to finances in them right from the start. In fact, not doing so could lead to disaster! Here’s how to help your kids avoid picking up bad financial habits as they grow up.
You Can’t Always Get What You Want
One of the biggest and most crucial lessons to teach your kids about personal finance is that just because you want something doesn’t mean you need it. Children love toys, after all, and every kid needs a nice, full toybox to play with, but just because your child sees something they want in the toy aisle at Target doesn’t mean they have to get it immediately, or even at all.
Skipping fancy, expensive toys teaches your kids a number of things. First, it gets them accustomed to being told “no”, which manages their expectations. Secondly, it helps separate needs from wants, and how spending money on things that are a necessity (new clothes for the school year) need to come before just for fun (a new game for their favorite console).
Everyone Needs to Learn How to Budget
Once your kids grow up and they’re on their own, they better be ready to balance their income against their expenses if they want to be successful. Learning how to do that can and should start at an early age, as neglecting this could lead to children getting into hot water in the future. This means teaching them the value of budgeting and driving home how important it is.
Budgets are crucial for financial stability. Showing kids how to put aside money to ensure the resources to pay household bills and other expenses is there illustrates responsible behavior. Teaching them to always pay their bills first ensures that they don’t end up running to you when the electric company is about to cut off the power to their first apartment for nonpayment!
Being a Smart Borrower Helps to Avoid Bad Debt
The humble credit card can be an excellent tool for good when used properly. Unfortunately, all too many young adults that didn’t get a good financial education while they were kids can end up falling into the same trap when it comes to using credit cards: racking up bad debt. Over-spending on credit cards is a recipe for disaster, as having to pay off a maxed card is a major drain on your finances; with most young adults starting out not making much, this is an even bigger strain on their ability to be independent.
Making late payments or missing payments altogether is even worse, as this has a terrible impact on your credit score and can easily damage your ability to take out a personal loan with bad credit in the future. This is why it’s so important to teach kids to never buy something on credit that they can’t afford to repay easily. If you’ve already taught them to budget carefully and also to prioritize needs over wants, this becomes easier, of course, but it’s still a crucial point to make!
Not Building Up Savings Is a Recipe for Disaster
Finally, one of the most important lessons to teach your kids is the importance of having savings to fall back on, or build an emergency fund. A financial cushion to help out in the face of unfortunate events can mean the difference between survival and financial ruin, after all, and in more ways than one: whether it’s your car needing new tires to remain roadworthy, a major appliance like a washing machine or refrigerator needing repair or replacement, or suddenly losing your job, the need for savings is undeniable.
Teaching good savings practices goes hand-in-hand with everything else we’ve discussed already. Prioritizing necessities and budgeting means having money left over that you can put into short-term or long-term savings, and practicing good borrowing also means that you’re not spending your money on repaying credit card purchases but instead socking money away for a rainy day. With the future uncertain, teaching your kids to hedge against the unforeseeable gives them the tools they need to not have a single emergency put them in financial jeopardy.
The Last Word on Teaching Your Kids to Avoid Financial Traps
Nothing is harder than being financially responsible, but it doesn’t have to be that way. Teaching your kids from the beginning to avoid the most common financial traps that are out there can help set them up for better success as adults, so be sure to model the best financial behavior you can with them if you want them to succeed!
