Laura Pearson from Edutude.net is back with a timely post about raising money-smart kids. Laura is family around here and has written some wonderful guests posts to help us with saving money and educating our kids to be more than internet-savvy, social media-trending youth. Dive in and see which tips stand out to you. Then stop by her blog and see what else you can learn!
A Step Ahead: Raising Financially Literate Children
If you’re like most adults, you’ve encountered at least one, and likely more, financial situations in which you wondered “why didn’t they ever teach this in high school?” From balancing your checkbook to understanding credit scores and how a mortgage works, many of us stumble through the holes in our financial education once we leave the parental sanctuary. Parents sometimes assume kids are getting some financial basics in school when the reality is that most public schools barely have time to teach their mandated curricula. Your best bet is to not assume that your children are getting practical life skills at school, particularly when it comes to financial basics. Take a look at some tips that your kids can take to the bank.
1. Provide an allowance – but with a budget.
The allowance is a time-treasured rite of passage for many households, but instead of just agreeing on a weekly or monthly earned amount, create a budget with them. Allocate at least one necessity that you currently pay for that now becomes their responsibility. It doesn’t have to be anything big; there are plenty of things they need that won’t have them going to school shoeless. It could be toothpaste, shoestrings, or a small item of clothing each month like socks or a shirt. Divide the rest of the budget into categories, such as entertainment, charity, savings, and discretionary. Family game nights with classics like Monopoly, or other financial board games, can help integrate this budgeting mindset so it becomes a personal habit.
2. Give them glimpses into everyday life.
Parents often try to hide the struggles of balancing finances. While you don’t want to unnecessarily worry your children, they can gain a better appreciation of why you need to deny them certain things if they understand realities such as how often the household wage-earners get paid and that money needs to last until the next payday, and how much basics cost, like food and electricity. Bank trips provide opportunities for age-appropriate explanations of how banks work. Take them to the grocery store and let them use a calculator to add up items as you put them in your cart. Odds are they’ll be surprised at how seemingly inexpensive individual items total up quickly into a few hundred dollars!
3. Provide numerous examples and reminders of “needs” versus “wants.”
The earlier your children understand the difference between the essentials and non-essentials, the better at planning they’ll be when it comes to understanding that they need an income that covers housing, utilities, food, transportation, insurance, taxes, and clothing, and once they earn above that they can take care of things they want, like streaming television subscriptions, pets, cleaning and yard services, and dining out. Demonstrate to them how they can save on some of the essentials to afford some of the things they want, such as shopping for clothing at thrift stores or taking public transportation.
For children who are old enough, this is also a good time to start bringing up renting a home versus owning, how much of their income should be spent on housing, and the ins and outs of how a mortgage works. As you’re discussing interest rates, explain how mortgage interest rates can change over time, and how a lower rate can provide an opportunity to get a refinance home loan. Discuss different options for what they can do with the cash-out amount, such as buying a different home, investing, buying down debt, or setting it aside for a dream vacation.
4. Help them understand the innate value of health
Discussing healthy habits fits perfectly into financial discussions, and provides parents with two ideal parenting opportunities: Cooking healthy meals with your children, which also saves money; and leading by example through healthy eating and exercise. Weave into these discussions how being healthy can save on medical costs and keep health insurance costs down. Discuss the importance of a holistic health approach and the benefits of alternative therapies such as acupuncture
Arm them with financial ammunition
Instilling a financial education into your parenting doesn’t have to be awkward, and it shouldn’t be. Financial management is one of the most important skills your children will need, and by taking it on in the household, you’re making sure that they are living what they are learning so they are financially literate enough to live on their own.