If you want to give your child the best start in life, teaching them how to master their money is a lesson well served. YBI reports.
As parents, we want to ensure we have set our kids up with the tools they need for a bright future. Just as we would teach our kids to swim before letting then loose in a pool on their own, we also need to be certain our children know how to take control of their finances if we want them to succeed.
While even grown adults can struggle at times to set financial goals and track their spending, a little preparation on your part will ensure your children understand the reality of saving, investing and budgeting. Years down the track they will thank you for it.
So, what are the lessons your children need to know to be financially fit? There is only a handful.
Delay instant gratification
Remember that old saying, ‘good things come to those who wait’? It’s often difficult to remember in this world of quick fixes and instant gratification. But one of the best things you can teach your child is to wait. Teaching your child to be grateful for what they have now, to consider their options and to delay gratification will help save them from the developing a buy now pay later impulse-driven mentality which could land them in debt when they’re adults.
Set your goals
If you really want to curb your child’s impulse to spend all their pocket money in one hit you need to help them understand savings goals. Get them to write up a wish list of things they want to buy. Explain how long they may need to save to achieve their goal, then help them devise a plan to get there.
Live within your means
Explaining how a budget works is another vital ingredient in teaching your child to be financially literate. Knowing how to create and stick to a budget is the single most important lesson any child can learn. And don’t forget, kids learn by example. Make sure you work on your own budget as you work on theirs. Help your child draw up a budget so they get an understanding of what money is coming in and what is going out. Introduce pocket money and let them work to earn it. Pocket money can provide valuable lessons on rewards for effort, so never give your kids pocket money for nothing.
Have a fallback plan
Did you know that currently, 26 per cent of Australians have less than $1000 tucked away in emergency savings? This lack of attention to a savings plan could leave millions of families at risk should they land in a crisis. Teaching a child the value of saving for a rainy day is an important skill. Saving money in a piggy bank is a great way to start but once your kids have grasped this, it’s a good idea to introduce them to the idea of how they can grow their funds by putting their money to work in an investment like a unit trust. You don’t need to get complex – no kids want to hear about compound interest. But you can explain to them the difference it can make if they start saving a set amount at 5 or 6 compared with 18 or 30. Prioritising good saving behaviour sets your kids up for life.
Steering clear of credit cards
Consumer debt is rising, so it’s important that your children get an understanding of credit cards from an early age. Managing credit effectively and avoiding having a balance is the lesson to learn in the long run. But how do you teach that? You want your kids to understand avoid credit card interest is important, and that credit should be used for emergencies or special occasions. Keep it simple. Even little kids can grasp the principle if you explain borrowing in simple terms. Maybe they borrowed some money from a friend to buy lunch one day. They understand they have to pay it back, but you could explain if they used a credit card instead and paid it back much later, their lunch would cost them more. Instead of $5 it might end up costing them $10. But the value of what they bought hasn’t changed.
And there you have it five simple lessons which could help your children get their money working for them in the future.