Raising Money-Smart Kids: Lessons in Establishing Good Credit Early
Many young adults are unaware of the importance of establishing good credit early. This is unfortunate, as in today’s world, good credit affects much more than credit purchases or loan applications. Many potential employers and landlords, for example, do check credit histories, and what they find or don't find does make an impression. Establishing good credit early is not only important for those future purchases such as a house, that may seem very far away to those just starting out, but also in terms of immediate goals and day-to-day living.
The money habits your kids learn today will stay with them to a lifetime. That is either a good thing or a bad one, depending on the lessons you impart and the ones your kids absorb. Here are 8 tips you can use to teach your kids about financial responsibility.
#1. Take Your Kids Shopping
You and your kids embark on many family outings, but a simple trip to the grocery store just might be the most important. Getting your kids involved in the family shopping is one of the best ways to teach them about money, budgeting and making smart choices.
You can start by writing out the weekly grocery list and noting the prices in the various sales circulars you receive. The lesson can continue when you get to the store. If your kid wants an expensive sugared cereal, you can show them the prices of competing brands and help them make a wiser decision. As they get older, you can start teaching your kid to read store labels, calculate prices per pound and find the best value.
#2. Play Money-Based Board and Video Games
There is no reason learning about money cannot be fun. Money-based board games like Monopoly are great at teaching financial life lessons in a fun way. These days there are also plenty of electronic games for smart phones and tablets. Seek out those games and play them as a family.
#3. Start Early
It is never too early to teach your kids about money. Even the youngest children have a sense of money and its value, so do not assume your child is too small to start learning the value of a dollar. Teaching your pre-school age children about money is also a great way to get them ready for school. Kids who can count money and make change will have a head start on their classmates when kindergarten rolls around. You do not have to make the money lessons formal. Just build those monetary lessons into your everyday family activities. From doing the grocery shopping to balancing the checkbook, there are plenty of ways to get the kids involved in the family finances.
#4. Talk to Your Child's Teacher
The sad fact is that few schools offer formal classes about saving and investments. Lots of kids graduate from high school without knowing how to balance a checkbook or compute an interest rate. Even so, it is a good idea to talk to your child's teacher to see what the school is doing.
Knowing what the school offers in terms of financial education can help you tailor your own message and avoid unnecessary overlap. You can also use your own lessons to complement what the school is offering, reinforcing the learning and improving its effectiveness.
#5. Teach Your Kids to Budget Their Allowance
Creating a budget is one of the best ways for adults to get a handle on their finances, but you do not have to wait that long. If your kid gets an allowance, they are old enough to start a budget. That child-sized budget may not include things like rent or mortgage payments, but knowing how much a candy bar or new toy costs will help them spend their money wisely.
You can find kid-friendly budget templates on a number of different websites. Just download one to your favorite device, customize it to your needs and start teaching your kid the joys of budgeting from an early age.
#6. Set Up Jars for Saving, Spending and Giving
The most successful investors tend to be the ones who started early and put money aside come what may. Instilling this kind of financial discipline is one of the best gifts you can give your kids. Set up three jars (or piggy banks) - one for saving, one for spending and one for giving. When your kids receive a financial windfall, or just their regular allowance, divide the money between the three jars. This will help teach your kids about delayed gratification, the importance of giving and the power of saving.
The division of the three jars is up to you, but 10% to saving, 10% to giving and the rest to spending is a good place to start. Hopefully the lesson sticks and your kid will go on to contribute at least 10% to their company 401(k) and give generously to charity.
#7. Let Them Fail
Everyone fails with finances. The ones who ultimately succeed learn from those failures and go on to make wiser choices. Resist the urge to bail your kids out when they overspend. If you let them learn from their mistakes when they are young, you will not have to bail them out later.
#8. Be a Good Role Model
No matter how much you preach out good money habits, your kids will mimic what they see. It is very hard to raise a money-smart kid of you and your spouse display poor financial habits at home. Strive to be a good fiscal role model in everything you do, from how you use credit cards to how you pay your bills. You, and your kids, will be better for it.
#9. A Debit Card, When the Time is Right
What better way to learn how to use a credit card than through controlled-spending and budgeting whereby you control the purse strings? When you feel they are mature enough, move their allowance into a bank account with a debit card that they can use for spending. They should be required to maintain a budget and keep track of their spending. This is also a great means of allocating funding for college when they fly from the nest. Not only will you have direct access to their spending habits, but you can also add funds expeditiously in the event of an emergency (avoid wiring money if at all possible, because wires do have fees).
The financial lessons you teach your kids today can last a lifetime. Even though some schools do teach courses in practical finance, most of what kids learn comes from the home. Building financial lessons into your everyday family life is the best way to raise a money-smart kid who will emerge from high school or college ready to take on the world.