Your kids have been watching you! They have also been watching their friends and the money actions of others. Do you think they have learned what they need to make good money decisions in the future?
I would dare to argue that their lessons learned about money are even more important than a college education! A child’s educational achievements mean nothing if the money they make as a result is not managed correctly. AND you shouldn’t do it for them. Here are five lessons you must teach your kids before they leave your home.
1. Be grateful
Lessons in gratitude apply to a lot of areas of life, but it especially helps when we need to make good money decisions. The other beautiful thing is this lesson can be started as young as preschool. Kids of all ages will compare what they have to their friends, it is inevitable. You don’t have to give in to feelings of jealousy or that need to compare. Teddy Roosevelt said it best, “Comparison is the thief of joy.”
Help children see that social media posts or conversations that brag can often cover up someone’s insecurities. Give them examples that this type of bragging doesn’t mean these people are happier or better than they are. Actions speak louder than words, so remember it isn’t just about counting your blessings but also showing others your gratitude. Here are some ways you can do that:
· Create a personal journal or a family one. Personal journals are good because it can help those teens who are shy to share their feelings.
· Make a collage.
· Write a thank you note to a cherished friend or loved one.
· Volunteer with those less fortunate
2. Teach them to WORK to save
Teaching kids that money doesn’t grow on trees (you know you’ve said that phrase to your kids just like your parents said it to you 😉). Money has a source and they need to see how savings can grow. With the money they’ve earned, show them how to start an investment or savings account. You will need to show them how to review the account every three to six months to make sure it is growing and how to adjust if it is not. You also need to show them how fees can have an impact on their growth potential.
When your kids start working it is good to talk about retirement accounts offered by companies, and you can open on your own. Roth IRAs are best if you can start them young!
3. Open a bank account and create a budget
Start making your kids pay for things, even if they don’t have a job. If you are giving your kids cash to go places with friends or to drive a car, then you should make them in charge of managing that money each month. Put the money you would typically give them each month into a bank account one time, and they must pay for their items by budgeting. For example, if you pay $200 for their car insurance, give $50 for gasoline, and $50 for weekend money each month you would put $300 into their account and they need to pay for all those items on their own.
You should show them how to create an auto-draft for the car insurance; we take those for granted, but they have likely never set one up. As your kids have more expenses make them also pay for those out of their account, and at sixteen they can easily have a small job. If time is tight maybe the job is mowing a lawn or two or babysitting, but they need to think about where their money is going to come from.
4. Debt might seem inevitable, but it doesn’t have to be
You may need to get creative to show kids scenarios for when their budget doesn’t work. Create an unexpected expense that their bank account won’t cover; maybe it’s a car oil change or an extra night out. Walk through their options to pay for the expense, and what happens if they use debt.
Actions speak louder than words here, so catch them a little off guard with this one. In this scenario, you can be the lender or creditor and show them what to expect from a credit card statement and interest rate charges. You also should talk about how they wouldn’t have to worry if they had an emergency savings account separate from their main bank account. Be a good example too, save before you spend on big items like a car and point out how sometimes you have to WAIT to get what you really want.
5. Talk about and educate them on sources of income
Kids need to understand the difference between going to work and making a passive income. When you are young, it is really hard to understand the “hamster wheel” their parents are often on with their careers, but it doesn’t have to be that way. Many parents teach kids how important it is to do what they love, but it is also essential to inform them that they have the option to work for themselves. Just because you may not have taken the leap into business ownership doesn’t mean they should not. Maybe you could start a small side business together.
Besides business ownership, kids need to see how investments can earn them a passive income stream. Dividends, rental income, or royalties are all great examples of passive income. Maybe take your kids, once they are old enough, to a local real estate investors meeting. You could also show them a newsletter and educate yourselves together, if needed, about music and art royalties. Passive income is what keeps you from being trapped at an unfulfilling job down the road.
It’s never too late to teach your kids about money. If you need some help, go to our “The Basics” category to see previous posts about budgeting and starting an investment account.
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