If you’re a parent, you have the power to shape your children’s financial futures. From a very young age, kids see how you conduct your financial life, and will follow your lead as they start to earn, save and spend money. Be sure you are modeling the types of behaviors that will lead to your children being responsible with money. Here are five essential financial lessons all parents need to share with their kids:
Living Within Your Means
Kids don’t need to know every detail of the family financial situation. But they do need to see that you are making good financial choices and not relying too heavily on credit to get by. If you find yourself having to use credit cards to pay for everyday expenses, or you’re constantly trying to keep up with your neighbors and spending too much to do so, it’s time to rethink your priorities, rework your budget and rein in your spending. This valuable financial lesson will also minimize your financial stress.
Paying Bills on Time
Whether it’s the mortgage or rent, car payment, credit cards or utility bills, it’s important to pay them on time, every time. Teach kids that maintaining a record of on-time payments is one of the best ways to build a good credit score, while paying late or skipping payments is one of the easiest ways to cause a lower score. Not to mention, skipping even a month on a bill puts you behind, racks up fees and charges and can be the start of a downward financial slide.
Saving for Emergencies
Life is unpredictable. That’s why preparing financially for emergencies is so important. We talk a lot about emergency savings because it can make the difference in how well you weather a financial storm. Explain to children that you have a family emergency fund, what it’s for and why it’s so important. If you’re not sure yourself, here’s a great place to start!
Understanding Wants and Needs
This financial lesson is an ongoing challenge for people of all ages, which is why it’s an important concept to start talking about with kids early on. Weekly grocery shopping is a great place to put it in action, since kids always see things in the store that catch their eye. Talking about what you need to feed the family, as opposed to what they might want because they saw a commercial for it, or their friends have it, or it simply looks fun, helps kids start to understand the difference between something they need to have, versus something they would simply like to have.
Confronting Financial Challenges Head-On
We all make mistakes when it comes to money, and your kids will, too. In fact, those early money missteps — such as spending all their birthday money on a toy they rarely play with — can help kids get a feeling for what careless spending feels like. But explain that when a real financial crisis hits, it’s best to confront it head on and ask for help before it spirals too far out of control.