Take a moment to think about all the bad financial decisions you have made. Now imagine that your children make similar (or worse) mistakes. Scary image, right? Even if you have managed your money well, there is always room for improvement with the next generation.
The responsibilities of a father seem endless. Of course, small problems sometimes fall through the cracks in the fast pace of daily life: preparing your children for financial success should not be one of these problems. Providing your children with a solid financial education is one of the most important things you can do to prepare them to leave the nest.
Why is it so important?
It’s easy to spot a young adult who doesn’t know how to manage his money. They usually incur reckless expenses, rely on other people’s loans to pay their bills and end up with bad credit and great debt. Even young adults living frugally in college may face difficult times after graduation.
According to a recent study by the Institute for university access and success, almost 70% of graduates will have a certain amount of student loan debt. The average amount of student debt per person was almost $ 29,000. While you can never guarantee anything in your children’s lives, there are many areas where you can make a significant difference by engaging them in honest and transparent conversations.
The first years: 3-7 years
For children of this age group, it can be difficult to understand some of the most complex concepts of money. However, it is still important to start teaching them as soon as possible. Research shows that many lifelong financial habits are formed at the age of seven. The most important principle that you should communicate during these years of training is that saving money is natural.
An interesting approach to teach young children money is the “Spend / Save / Give” project. Take three cans and label them properly. Whenever your child receives money, in the form of a subsidy or gift, ask him to distribute it among the three jars. The shopping bottle is often accessible and the funds it contains are free for small economic items. The backup bottle should only be opened when it is time to buy something for which your child has specially saved. Finally, the Jar Jar must be reserved to buy gifts for others or to donate to charities.
Another important strategy to use in this period is to discourage instant gratification: it is also one of the most difficult. Be persistent Eventually, your child will begin to understand that each trip to the store does not entitle you to a surprise or a toy. Denying instant gratification will be a solid defense against impulsive spending as you get older.
Preteens: 8 to 13 years.
When your children reach this age group, they are likely to be ready to learn some of the most complicated factors involved in financial decision making. It is okay to always use the Spend / Save / Gift example, but it is recommended to increase the threshold to empty the rescue boat. Remember to set achievable goals: setting goals that will take several months can cause your child to lose interest.
It is a good age to involve your children in household finances. Ask your children to help you cut coupons or make small changes to your budget. Take them shopping with you and encourage them to take note of the price of everything. When he goes to the cashier, he translates the total price into something more tangible, such as the number of hours he had to work to make the purchase.
A similar tactic can be used for larger purchases: how many months do you have to work to pay for your vehicle? How many weeks to buy a new TV? How many days to pay the phone bill? These are the years to save them money. Leave them online and experiment with a compound interest calculator online. Introduce them to the idea of saving for retirement and not borrowing.
Adolescence: 14-18 years.
Life after graduation is something that all high students routinely fantasize about. While they may be thinking about all the fantastic college parties they will attend, it is your duty to make them think about the financial milestones they are about to experience. According to a 2014 study by the University of Michigan Institute for Social Research, “most students devote about one-half or more of their earnings to discretionary spending on relatively short-term wants and needs.”
Aside from reckless and impulsive spending, the main danger your young adult will face during their college years is aggressive marketing from credit card companies. It is no secret that many major credit card companies deliberately target the young and financially inexperienced. If your teenager is planning to apply for a credit card, teach them to avoid debt by never charging what you can’t pay back within a month.
During this age range, escalate the monetary value of their savings goal. Have them draw up a budget for any recurring funds they may receive. Prepaid debit cards are an excellent way to prepare teens for the “real world” – overdrafts are typically not allowed, you can add funds electronically, and many companies provide online budgeting resources to help track spending.
Your Children Will Thank You
Once your kids turn 18, you will lose a great deal of control over their spending habits. By planting the seeds of smart money management early in their lives, you are directly influencing the success of their future. Even if you have subpar financial skills, it is never too late to learn and pass the knowledge on to your offspring.
The key concept to remember is that you must spend less than you earn to avoid financial hardships. Everything else will eventually fall under that umbrella. Teaching your children about saving, avoiding debt, and planning for contingencies will set them well on their way to a life of financial happiness.