So many people find themselves in credit nightmares and debt pits, it’s amazing to learn that their credit problems usually stem from an improper knowledge of how credit and debt works. Learning how to manage money is simple; however, if you don’t learn this skill at a young age, you may very well be setting yourself up for failure. Teaching your children financial basics and how to save money is an incredibly important lesson.
There are many products on the market to help teach your child how to save money, but you don’t have to spend in order to save. Financial wisdom is something you teach by example. Implementing a savings strategy in your home is the best way to instill financial knowledge into your child.
Teaching your child to spend money wisely includes actively involving them in the spending process. If you are going grocery shopping, be clear with your child in the amount you are budgeting to spend. “I’m planning to spend $200 on groceries today. We’re going to calculate our groceries as we shop to make sure we don’t go over” is a good start. But always follow through. If your budget is $200, stick to it! The point to drive home is that you don’t spend more than you budget for.
When it comes to saving money, it’s important to teach your child that the money you put aside for saving is for FUTURE use. Many families adopt the 10/10/10 savings plan. 10% for short term savings, 10% for mid-term savings (or tithes), and 10% for long term savings. The 10% for short term savings may be for a small appliance, or school clothes shopping. The key here is that you’re simple saving the money for a short amount of time. 10% for mid-term savings may be for a new set of tires for the car, or a larger appliance. 10% for long term savings may be for a vacation, a new car, or a new home. You must, however, be the example, and teach your child that these savings “accounts” are not to be touched until their intended use is due. The reward is priceless when you’re able to pull out the savings you’ve accrued and are able to show your child how that 10% has slowly accrued into your savings goal!
If you are currently facing money problems, or have credit issues, don’t add your child onto you credit accounts. However, if your credit score is average to outstanding, add your child to your credit account. You don’t even have to give them a card-just add their name as an authorized user. This will allow you to build credit for them!
Also, teach your child about how credit works. A credit card is NOT free money. Teach your child (usually teens) about the basics of interest rates and an APR. This can be as simple as when your child asks to borrow money. Give them a “credit” loan with a written out interest rate and an APR. Write out, on a calendar, how that interest rate compounds; and how a $10 loan can quickly go to $15, $20, and even $50 when not paid back on time!
It is incredibly important for parents to teach their children how to responsibly manage money. Their financial future depends on you!