Why Teaching Your Kids Finances Is Incredibly Important
By Anita Ginsburg
Most finance-savvy adults had parents who taught them about money management from an early age. Those who didn’t have these parents were forced to learn and adapt quickly as adults and often fell into traps like excessive spending, poor saving habits, and taking out predatory loans. One of the greatest things you can teach your children right now is how to handle their money wisely.
Great Financial Habits Start at Home
Setting your children up for success starts with teaching them great financial habits from a young age. The problem is that most parents don’t know how to teach their children about finance in a comprehensive way. Most financial topics are complicated and confuse most adults.
The best way to start teaching your children about finances is to start with personal finance. The realm of personal finance includes habits around money management and budgeting. The best way to start is by giving your kids an allowance.
Some parents prefer to use fake currency, but others prefer to start with real money. This decision should be based on your parenting preferences and financial situation. Once you give them an allowance, show them how to set a reasonable budget by splitting their money into different categories.
Many people use the 50-30-20 rule, where 50 percent goes to needs, 30 percent goes to wants, and 20 percent goes to savings. Because children typically do not have major needs, most parents switch this around to encourage 50 percent in savings.
Make a Custodial Investment on Their Behalf
Because children cannot hold investments until they are adults, a custodial investment is a great way to build up their portfolio at a young age. A custodial investment is an investment account in your child’s name that you officially manage until they come of age.
These accounts are more flexible than a 529 plan or typical college savings accounts. You should start these custodial investment accounts early, but you can decide when to begin educating your children about them. Letting your children know about their accounts is a great way to start talking about long-term savings options and how investments work.
Transparency Creates Stronger Bonds
One of the main benefits of teaching your children finance is that your relationship will grow much stronger. Being transparent about how you handle the family budget and manage your money is a wonderful way to develop a better relationship with your kids as they grow up. Together, your family can talk about how earning money works, what the main spending sources are, and the financial goals of the family.
Create Savings Goals With Them
It is just as important to be involved with their financial goals as it is for you to bring them into yours. Of course, as they grow older, it is also your responsibility to create boundaries and allow them privacy and independence. However, while they are still children, creating savings goals with them and being with them while they count their money is a great way to stay involved.
You can subtly give them suggestions on best savings practices and show them how to track their money and create savings goals. Some savings goals for children are saving up for presents for their friends and family, saving for a new toy or electronic, or saving for a trip or experience.
It sounds intimidating to teach your children about the world of economics and finance. However, there are so many simple ways to begin teaching them essential financial habits. If you teach them well, they will develop critical spending and saving practices that will help them into adulthood.
About the Author
Bio: Anita is a freelance writer from Denver, CO. She studied at Colorado State University, and now writes articles about health, business, family and finance. A mother of two, she enjoys traveling with her family whenever she isn’t writing. You can follow her on Twitter @anitaginsburg.