Getting your children set on a financially savvy path for life
(StatePoint) — From keeping track of an allowance to learning basic budgeting skills, teaching kids about money can help them improve their math abilities and develop important life skills.
While parents may feel inclined to shield children from certain realities of adulthood, personal finance experts say that learning money management early can play a key role in a healthy financial future.
“Learning to add dollars and cents might come from school, but money values come from home,” says Hitha Prabhakar, personal finance expert at Mint.com, an online tool for tracking finances that offers these tips:
Establish needs vs. wants: While a young child might have trouble understanding that he or she doesn’t need a toy,distinguishing wants and needs becomes clearer as children get older.
The store can be a good place to emphasize the difference. For example, when you’re at the supermarket, show your child a box of cookies and explain that you don’t need it to survive, but might want it because you enjoy the taste.
The big picture: While kids might see you spend money at the store, they probably don’t see you save or invest it. So cover all the bases, including saving, bills and budgeting. Demonstrate how budgeting works by placing a dollar’s worth of change on the table. Use three dimes to show them that 30 percent of each dollar goes toward the mortgage. Use two nickels to show them that 10 percent of every dollar goes toward retirement, and so on.
Allowance: Some parents don’t like the idea of giving kids money, but paying kids when they do chores lets them see that money and work are connected. You might notice that when kids work for their allowance, they’re a little more entrepreneurial.
Debt and credit: Don’t skip lessons on debt and credit. Everyone needs to understand how borrowing money works. Demonstrate how interest works by loaning kids a small amount of money with a 5 percent interest charge. After they’ve repaid the loan, compare the amount they paid back versus the amount they originally borrowed.
Let them be: Your goal is to end up with kids who are financially savvy, so don’t micromanage their finances. It’s tough, but you have to let kids set their own goals and in some cases, make their own mistakes. Know when to step in and provide assistance, but remember – children will better enjoy learning about money if you let them make their own decisions.
The bottom line is that money management shouldn’t feel like a chore, but an essential part of the way we live. Start early to set children on a financially savvy path for life.