Teaching your children about money management while they are young can help them be financially stable later in life, and have a smart approach to spending and saving money. There is more to money management than simply earning money; there are budgets, debit and savings accounts, how to use credit cards, and even what a loan is. Going over each of these things with your children now can help them later in life. There are plenty of lessons you can teach your kids about money management.
The first and most important lesson is that nothing in life is free and working hard pays off in the end. Setting up a chore list for your children is one of the easiest ways to demonstrate this. You can price out different chores, and then at the end of the week, your kid’s allowance is based on what chores they did. Start off by making simple chores like setting the table for dinner, or putting their shoes away at a lower price, and then have harder chores like vacuuming, dusting, or even mowing the lawn priced higher. This will teach your kids that the harder they work, the larger the payout. Of course, you may want to add in that if the chore isn’t done right, then they don’t get the full amount or even lose money. You can automate the chore list and payouts by using programs like My Job Chart. My Job Chart is a simple way to set up chores for each of your children as well as reward points for completed chores. These rewards can be used on Amazon.com either as soon as they are earned or they can be saved up to get a bigger item.
Learning how to budget and save money can be a difficult lesson even for some adults. However, knowing how to budget and save your money properly can help you stay financially stable. The easiest way to create a budget is by using an accounting program so you can easily track all expenses. This can help your children visualize their earnings and spending. Once you have tracked all of their expenses and earnings, you can then create a budget. Ask your children what they hope to accomplish with their money and if they have time period they would like to have it done by. This could be anything from a bike I saw to having $100. Once you have a goal for them, you can show them how to create and change their budget based on their needs and goals. After you and your kids have created a budget, encourage them to stick to it so they can learn how a budget allows them to save money. This can help teach them how to spend and save money wisely in order to get to the main goal. Learning this lesson will come in handy later in life when they decide to save up to buy a car or even put a down payment on a home.
Another very important lesson is learning how credit cards work and the proper way to use them. There are more than 500,000 people who go into debt each year with an average debt of $10,800 per family. Learning early in life how to avoid debt and how to properly use a credit card can help your children live a debt free life. The first thing your children need to know about credit cards is that they aren’t free money. Explain to them that anything you buy on your card has to be paid back and that you are using your real money to pay for the item. You can go into depth on the topic by discussing what it means to pay off your card and how you can acquire debt. With older children, you can also talk to them about interest rates and how it affects your monthly payments. One key point when discussing interest rates is that by paying the minimum amount due on your bill actually causes you to pay more over time than you owe. While the concept of a credit card and how it works may be complicated to teach a young child, learning the basics of it will help them when it comes time to get their first card.
Teaching your children about loans can also be done at an early age. If your child wants to buy something that they can’t afford at that moment, let them borrow money from you to pay for it. By doing this you can demonstrate how a loan works. Come up with a payment plan, including a down payment, monthly payments, and even penalties for late payments. For late payments, you can come up with consequences, like being grounded for a day or not being allowed to use the item however many days the payment is late. While some people may not think this is a fair arrangement for children, it still demonstrates how a real loan works and that there are consequences for if you fall behind on payments. In the end, this can teach your children financial responsibility. In order for this lesson to work, you have to stick with it until your child has fully paid you back.
The most important thing to keep in mind when teaching your kids about money management is to practice what you preach. Children learn by example, so set the stage up right for them by managing your own money and taking charge of your own financial responsibilities. There are many different ways that you can teach your children about money management. When your kids are old enough, you can even help build their credit by making them an authorized user for one of your credit cards that are attached to your account or getting them a student checking and savings account.