Teaching our kids about money and how to handle it is no easy task. But it’s not impossible. A good foundation early on can go a long way to ensuring your child has a solid grasp on money matters. Here are five financial concepts your child should know.
1. Money Doesn’t Grow On Trees
It’s important right off the bat to teach your child the value of hard work. Handing your child a weekly allowance on its own can give your child the wrong idea about how one obtains money. As we know, money has to be earned and your child should know this, too. Give your child some chores around the house at an early age and explain to them that the money you give them comes as a result of that work. This will prepare them for when they begin summer work in their teens.
2. Wants and Needs
Delayed gratification is something most of us overlook these days and credit cards are to blame. There was a time when one had to wait until payday to buy that special something, but the Plastic Trickster has fooled us into thinking we can have whatever we want, whenever we want it. As we leave in a society dominated by credit, it’s important your child understands the difference between wants and needs since both can be obtained on credit. By differentiating between the two, one can avoid impulse buys that often come back to haunt us.
3. Compounding The Solution
Trying to get a teen to save for the future is like trying to grow cactus at the North Pole. Kids live for the moment and tomorrow can take care of itself. However encouraging your child to start tucking at least a little money away early on can pay big dividends. Over time, small amounts of savings can grow as interest compounds. This is the only example of ‘money for nothing’ in the real world. Have you child tuck a few dollars away and forget about them.
4. Credit Cards Are Not Carte Blanche
It’s an important distinction, but it’s amazing how few people really grasp the concept. When you ‘buy’ something with a credit card, you actually haven’t bought anything… yet. The card has just allowed you to take the item home. You buy the item when you pay the credit card bill. Using credit responsibly is one of the biggest lessons you can impart to your child in order to avoid the pitfalls that await anyone with credit cards in their wallet. Teach them to pay cash or save up for what they want. Also to pay their credit bills as soon as they come due.
5. Becoming a Fuss-Budget
Once your child is earning a regular pay check in place of a weekly allowance, then it’s time for them to learn how to budget. Whether it’s saving up for a first car, a trip around Europe, or for college, the sooner your child learns how to divide his or her earnings into ear-marked allotments, the better of he or she will be. Teens often become dazzled by their first earnings, convinced that everything is theirs for the asking. This spells trouble when they grow up and have their first mortgages and loans to pay.
This is a guest post from Andrew Salmon. He writes for LifeCover.ca: a Canadian term life insurance website.
