Teaching children about personal finance is one of the most critical responsibilities of a parent. By instilling good habits in your kids while they are young, you are setting them up for success as they get older. Parents always want their kids to succeed in life, and being successful in managing one’s finances is no easy task. Rather than waiting for kids to be on their own to teach them these lessons, it is essential to start while they are young. Focus on various topics, from how to research the best personal loans to picking out an investment broker. Your kids will thank you in the long run.
Here are the most important things to keep in mind
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Show them the value of money
You can start teaching your children about the value of money from a young age. Give young kids a small allowance to show them how far that money goes. For instance, if you go to the store and let your kid pick out any toy they want, they will not know how much it costs. However, if you give them $10 and let them spend it how they wish, they learn how far money can take them.
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Teach them budgeting tools
Budgeting is one of the most important things to instill in your children. You should teach them how to save, spend, and the difference between wants and needs. Use your monthly budget as an example, and then show them how to make their budget. Use their allowance or part-time job to guide them further on the value of money and how difficult it can be to budget sometimes. Instill the importance of having a safety net so they will not have trouble during times of inflation or if they have to take off work for a short time.
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Teach how to invest
Investing is one of those things that can be highly confusing if you do not have someone there to show you the ropes firsthand. You can show them how to set up a Roth IRA or invest in other stocks and bonds. Explain what a 401(k) is and how employers help you save for retirement. Studies repeatedly show that investing from a young age helps you significantly more than if you start investing at age 30 or 40.
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Encourage employment
When they are teenagers, some form of employment can help them learn how to manage their own money. The money used from their job can be split into savings, money for necessities, and money for doing things with friends. Think of employment during high school as a way to test-drive real life, where mistakes are not detrimental to their financial well-being, but they still learn valuable lessons.
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Help them with their first credit card
Some credit card companies do not have a minimum age for authorized users on cards, while others, like American Express, have a minimum age of 13 years old. Allowing your child to be an authorized user on your credit card helps them tremendously as they start building credit. Of course, you will want to keep a close eye on spending to make sure they do not get into trouble with their balances, but building credit is crucial to a financially healthy future.
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Help with taxes
When your children do start working, taxes can be another tricky concept. Most schools do not teach much about taxes so they will lean on you for a lot of support. While some jobs take taxes out automatically, others, like serving or babysitting, will not have taxes taken out as they get paid. Teach them how to save this money so they do not have anything to worry about when it comes time to file taxes.
Bottom Line
Financial literacy is not taught heavily throughout the country, so children will do most of their learning at home. Lead by example, so they have a great foundation to start on. Let them know that you will always be around to answer questions and guide them as they need it.
