Take a moment to think about all the bad financial decisions you’ve made. Now imagine that your children make similar (or worse) mistakes. Scary picture, right? Even if you’ve managed your money well, there is always room for improvement with the next generation.
A parent’s responsibilities never seem to end. Naturally, small problems sometimes fall between the cracks of 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 for leaving the nest.
It is easy to spot a young adult who does not know how to manage his money. They usually incur reckless spending, rely on other people’s loans to pay their bills, and end up with poor credit and heavy debt. Even young adults who live frugally in college can face difficult times after graduation when their student loans are due.
According to a recent study by the Institute for College Access and Success, almost 70% of senior 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 you can make a significant difference by engaging them in honest and transparent conversations.
The first years: 3-7 years
For children in this age group, it can be difficult to grasp some of the more complex concepts of money. Nevertheless, 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 a natural thing to do.
An interesting approach to teaching money to young children is the “Spend / Save / Give” project. Take three jars and label each one appropriately. Whenever your child receives money, in the form of an allowance or a gift, ask them to distribute it among the three pots. The Spend Jar is frequently accessible and the funds it contains are free for inexpensive small items. The backup jar should only be opened when it’s time to buy something your child has specifically saved for. Finally, the Give Jar should be reserved to purchase gifts for others or to donate to charity.
Another important strategy to use during this time is to discourage instant gratification – it is also one of the most difficult. Be persistent. Finally, your youngster will begin to understand that each trip to the store does not entitle him to a treat or a toy. Denying instant gratification will be a solid defense against impulse spending as they age.
Pre-teens: 8-13 years old
By the time your children reach this age range, they will likely be ready to learn some of the more 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 Save Jar. 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 minor budget adjustments. Take them shopping with you and encourage them to take note of the price of everything. When you go to checkout, translate the total price into something more tangible, like the number of hours you had to work to make that purchase.
A similar tactic can be used for larger purchases: how many months do you have to work to pay off your vehicle? How many weeks to buy a new TV? How many days to pay the phone bill? These are the years to get them to save money. Let them go online and experiment with an online compound interest calculator. Introduce them to the idea of saving for retirement and not going into debt.
Adolescence: 14-18 years old
Life after graduation is something every high school student fantasizes about regularly. Although they are thinking of all the fantastic college celebrations they will be attending, it is your job 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 spend about half or more of their income on discretionary spending for relatively short-term wants and wants.”
Aside from reckless and impulsive spending, the main danger your young adult will face during his college years is the aggressive marketing of credit card companies. It’s no secret that many large credit card companies are deliberately targeting the young and less financially experienced. If your teenager is considering