ids today have more access to financial resources than ever before. From online tools like Chase Quick Pay and Paypal, to on the go mobile options like Apple Pay and Samsung Pay, a child can spend large sums of money in a matter of seconds. For this reason, it is important to teach them about financial literacy and responsibility early on. By setting expectations at a young age, children will learn proper habits that will prepare them for a life of proper financial budgeting and planning. This way your child will not have to apply for a car title loan after his 16th birthday. Follow the following 6 rules to promote financial responsibility to your children.
- Practice smart finances yourself
Kids learn from the behavior of others. If you consistently spend more money than you earn, or if you overspend on frivolous objects that you do not need, kids will model their behavior after your own and will take on the same bad habits.
- Teach your kids about the realities of finances and adult responsibilities
Few children or even young adults today know about life’s more complex financial problems, like retirement planning, unexpected health care expenses, college savings accounts, and property tax escrowing. Spend some time teaching your children about each one of these topics one at a time. Be sure to not overwhelm them since these topics tend to bore even most financial experts.
- Give your children an allowance
An allowance is a great opportunity to teach your children about the cash flow cycle. The consistent payout lets kids experience something similar to a steady paycheck. Since the point of the allowance is to teach kids good financial behavior, you do not necessarily need to tie it to the performance of chores. Though personally, I do not mind doing so since I then have extra help around the house.
- Make your kids save money for a rainy day
Adults should never spend every dollar they earn. Kids should be taught to not do so either. Be sure to explain to them that although spending some of the allowance right away is normal and healthy, spending all of it at once is not. A portion of each and every dollar should be put away towards a long term goal like an expensive electronic device or a gift.
- Expose your children to financial institutions
Next time you need to go to the bank, take your children with you. Too many people these days operate outside of the traditional banking system and lack the familiarity with normal banking functions. Children should know how to deposit a check, take cash out of an ATM, talk to a teller, and open an account.
- Promote entrepreneurial activity
Encourage your children to start their own mini business ventures that will earn them additional cash and help boost their confidence. For example, if a kid wants to set up a lemonade stand, be sure to charge him or her for the supplies to make the lemonade (the cups, the lemons, the sugar). This approach will teach proper budgeting and the need to turn a profit.