Financial education is among the most important things someone can learn in their life. It can mean the difference between living a rich and happy life and living paycheck to paycheck in a continuous cycle of falling into financial ruin.
We can do our part to ensure that our children have a solid baseline knowledge of personal finance.
Today we discuss how you can take steps to financially prepare your children.
It can be a wonderful and exciting time when your children first go out on their own. After watching them grow and raising them through all these years it can be an emotional time as well.
As parents, we want to prepare our children for the real world. We give them our support and teach them the facts of life. We also make sure they have a good education.
But the educational system can only do so much in preparing them and, as of this writing, does a poor job of preparing kids to handle their finances.
And that’s where we should step up as parents and give them a head start. They shouldn’t need to learn the very basic concepts of personal finance by trial and error if we’re there to teach it to them.
A bit cliche but still very important. Give your children the early experience they need with money.
When your kid gets his or her first part-time job, start them contributing to their savings–or even better, a retirement account.
If they want something expensive, give them an opportunity to get a loan from BOMAD (Bank of Mom and Dad) and have them write up a repayment plan and present it to you.
Make handling finances normal from the get-go. Which leads into the next point.
For most people, our very first teachers are our parents. As kids, we emulate and imitate until we form our own opinions on things and change our behavior from there.
A lot of parents try to shield their children from their financial lives “for their protection.” The problem with this is, if you don’t talk about it, you don’t learn about it. If there’s news that reaches the children’s ears, it’s always only good news.
But by insulating your children from the bad stuff, they won’t learn to deal with it in a positive way.
Money shouldn’t be a taboo topic. It’s important to foster an open conversation about money including both your failures and successes so that it doesn’t become this mysterious thing that your children grow up knowing nothing about or, worse, avoiding.
A bank shouldn’t just be a black box where you put your money. When you bring your children along with you to do financial transactions, you’re exposing them to what a bank can actually do.
As your children age, they will more and more need to interact with a bank. It can be helpful for them to know the basics. Make sure to cover:
And then as they get to a more advanced age teach them about:
It’s also beneficial to expose them to transactions outside the bank like:
Before they start working show them how you:
If they see these transactions throughout their lives, it’s going to be a simple task for them to do these when they’re older.
Money management is one of the most important things to learn in personal finance. Teach them your method of doing it and find other ways to manage money that you can explore.
Different strategies can be used in different stages of life. You can impart valuable lessons even by just starting with managing their allowance.
For example, you can show them how their savings can grow with the power of compounding interest. If they save half of their $30 weekly allowance and put it into a vehicle that earns 4% interest, their money can grow to $8,864.44 at the end of 10 years with $1,664.44 as the amount earned from interest.
There’s a sense of pride involved when you reach financial milestones such as creating your emergency fund, paying off your mortgage, and becoming debt-free. Reaching such important moments gives you the satisfaction that, yes, you’ve conquered this goal.
So why not share that with your children?
Give them the opportunity to help with your financial challenges. They may even come up with creative solutions that you’ve never imagined possible.
This is even more critical when it’s something related to their future, like paying for college.
Tuition, living expenses, money for projects and overseas trips, The bills just keep on stacking.
Once they understand the implications of taking on a massive amount of debt even before starting to work, they might feel disheartened. After all, compounding debt can be difficult to get out of.
Here’s where your creativity as a team comes in to figure out ways to cut or even eliminate the costs of a college education.
Once they understand that there’s more than one way towards a financial goal, they won’t feel trapped when they face a tough problem later on in life.
If there’s one thing that life will teach you, it’s that learning does NOT end at school or at home.
Teach your kids that life is a never-ending learning process and that teachers can come from all walks of life.
Either in a classroom setting, through books, by listening to podcasts, or even reading blogs, the ability to find good teachers will allow your kids to lead rich and fulfilling lives.
We all do our best to prepare our kids for the real world but, in the end, we should rest assured, knowing they have been exposed to money matters their whole lives.
Ultimately we want our kids to become independent and strong people. If we do our job and keep communication lines open, they will handle financial matters easily and take the world by storm.