A recent study conducted by the University of Illinois at Urbana-Champaign found that over one in three young adults in the United States are "financially at risk." This is a broad statement, meaning these young people have poor financial literacy, lack money management skills, and have little to no income stability. The 2018 study targeted young Americans between 18 to 24 and found that 36% of them had undergone a significant and unforeseen drop in financial income over the previous year.
The research confirmed a growing perception in both financial and social circles that young people are more prone to financial difficulties than other demographic groups. However, the financial troubles faced by young people are often ignored or glossed over by everyone from parents to regulators and policy makers. You do not have to let the tragic state of affairs befall your kids, too. Here are 10 effective and proven tips to help your children attain financial independence.
Teach Them Financial Skills Early
Teach your children important financial skills from an early age. The most important of these is budgeting. Before you give out cash, let them come up with a plan of how they intend to spend, save, and maybe even invest the money they receive. Teach them the need to keep expenses low and how to get the best value for money when they opt to spend it.
A budget is one of the simplest yet most essential of financial management tools you can teach your children to use. In the modern world, where most money spent is usually in "invisible" forms such as credit cards, mobile money, online wallets, and internet banking, budgeting is even more essential to help young people understand concepts such as cashflow and the importance of setting financial goals.
Help Them Set and Achieve Financial Goals
One of the most essential financial concepts young people need to learn is that it is more fulfilling to make a plan and spend money in line with that plan instead of spending money on impulse because it is available. You can help them live by this by offering guidance on how to set and achieve financial goals. Start off by setting simple and easily achievable goals. These goals should include both saving and spending of money. Once they have achieved the first set of goals, progress to more ambitious targets. However, ensure that these are achievable and realistic.
It is also important to let young people understand that even if a particular goal was not achieved, this is not a disaster. They can alter the goal or set a different timeline for achieving it. All through the goal setting and monitoring, let them take charge of the decisions, and do not dictate how to go about everything. The ultimate objective is that your children learn to appreciate money as a resource that can be used to achieve desired ends, but that this needs to be done in a strategic fashion.
Guide Them on Developing and Maintaining a Positive Credit History
Statistics show that young adults are becoming heavily indebted even before they begin earning an income of their own. However, do not "discredit credit" offhand. Let them know it is often wise to take credit to achieve certain financial goals. However, impress on them that it is wrong to take a loan without a clear plan on how to pay back the money in full and within the allowed time limit. Always lead by example by ensuring all your bills are paid in full and in time.
Teach Them That Nothing in Life is Guaranteed
That nothing is guaranteed is one of the harsher realities of life your growing children will come face-to-face with. This is even more significant when it comes to financial independence and security. There are going to be bitter truths such as losing a job unexpectedly or a housemate in college failing to raise their proper share of the rent in time. Teaching them how to use saved money to avoid disaster when life throws them such curveballs is an essential skill that must be inculcated while they are still young.
Make Them Responsible for Personal Costs Early On
Instead of dishing out cash every time your children have a cost to meet, give them a regular allowance to cover all their anticipated spending. In this way, they will be careful about such choices as their data usage on mobile phones, and they won’t wastefully spend whatever they have at hand. Giving them this responsibility will lead to more careful decisions about what to spend money on and what to do without.
Let Them Participate in Planning Events
Let children participate in every kind of family event which requires planning how cash will be spent, like birthdays, holidays, family outings, reunions, or anniversaries. Ensure their input and opinion on expenditure items such as food, transport, accommodation, and more is taken into account. The main objective is to ensure they understand and appreciate how much such undertakings cost. They should also get familiar with how certain choices, even those which seem not to be very significant, can affect the budget negatively or positively.
Encourage them to Do Research Before Spending
It is a good practice to encourage your children to obtain as much information as possible first on the stuff they are looking to spend money on. The information they should look for should not be only about getting the lowest priced offers. It is just as important to look for added value indicators such as superior features, after sales services, or the best warranty guarantees.
Give them Hands-on Training on Banking
It pays to provide the basic experience of banking and bank accounts to your children in their formative years. Of course, it may be too early to grasp the intricacies of checks, getting $5,000 unsecured loans for bad credit, interest, and other banking paperwork, but there is a lot besides these to learn. Open an appropriate account in their name and have them get to understand such concepts and terms as minimum balance and service fees. Go through the bank statements every month, evaluating every item on the document and what it means. You should also guide your kids on such matters as bank account overdrafts and what it means to be overdrawn.
Help them Take Precautions Against Identity Theft
Research shows that young adults, specifically those between 18 and 24, are considered a prime target by internet identity thieves. Impress on your growing kids that they must not give out personal details to strangers, no matter what the implied incentive is. The details that could lead to identity theft include their date of birth, credit card numbers, driver's license number, and address. Make them understand that identity thieves often go to extraordinary lengths to mask their true objective. Caution your children that identity thieves' tools of trade often include innocent-looking apps and software young people are induced to download and install on mobile phones or PCs.
Let Them Know Help is at Hand If and When They Need It
Despite your best efforts, it is more than likely that your growing kids will make financial mistakes as they mature and grapple with their finances. Some of these mistakes are likely to be more serious than others. Let them understand that no matter how difficult the situation is, there is help available, and they can get out of the mess before it is too late. There are agencies which are dedicated to help young people get back on track after they get into financial trouble. These include Credit Counselling and Student Loan Counselling.
How have you been helping your children grasp the intricacies of handling money and finances responsibly? We hope these ten tips have offered you a better idea how you can prevent the real danger of financial insecurity and debt from holding your children captive as they enter adulthood. However, we welcome more suggestions and any practical approaches that could help another parent or guardian steer their youngsters onto the road to financial stability and independence. Get in touch, share, and let's keep the conversation going.