The Most Important Life Lesson to Teach Your Children
Across the country, or even statewide, we don’t currently have a formal process for teaching our kids about their finances, but we should absolutely be teaching our kids about their finances. There are lots of different ways it can be done, but the important part is that kids grow up with an understanding of spending only what you have, contributing to savings and that one day, they will have bills to pay. When we instill ideas in our kids from an early age, we help ensure they are prepared when that first credit card offer comes in the mail, and when they go out on their own and have to pay rent and utilities. How you go about teaching your kids is up to you.
Lots of people don’t want to share their personal financial situation with their children, and I personally think that’s totally fine. There are lots of ways you can teach kids about personal finance without sharing your own details. Here are a few examples that I have encountered among my friends and family.
1. Decide on a Savings Plan
Pick a percentage you think is reasonable, and let your kids know that a percentage of any birthday checks they receive or babysitting money they earn will go into savings and explain to them that this is a habit they want to have for the rest of their lives. People I know who have done this chose a percentage higher than what you would probably save in the real world, in an effort to set their kids up to have a good amount in savings by the time they enter the real world. The exact amount you choose is up to you, but I like this idea because it gets kids thinking about saving and starts the habit of not spending everything you earn early on.
Other friends of mine have let their kids spend any cash they receive, but any checks go into savings. For birthdays and things, often checks will be larger than cash amounts given, so this can be a good plan for building your child’s savings account, but is less translatable to the real world. If you choose this plan, I would use it in conjunction with other methods of teaching your kids about personal finance.
2. Mandate a Savings Account Minimum Balance
As your kids get older, the toys and things they want seem to increase in price. For those items they really want and are willing to spend their own money on, come up with a savings plan for them. Allow them to spend what they want as long as their savings account has a certain amount in it. Or make the savings account they normally contribute to like the adult version of a retirement account, and explain that they can’t just empty it when they want a new toy. Instead, they’ve got to save up by not spending their future income and put that money away separately towards a certain goal.
3. Turn their allowance into a real world income
This is the most complicated one, but perhaps the one that would teach them the most about how the world of personal finance really works. Each week they receive an allowance for chores completed, which effectively equates to their paycheck. Once a month, they have to pay some of that back to you for various expenses, which would represent, rent, utilities, groceries, etc… If you choose to go this route, you will want to make sure their allowance is enough that they can pay you a portion back and still have some left for spending, and of course the amount they would pay you back would simply be so they get the idea, not necessarily a real world portion.
How you choose to teach your kids about personal finance depends on how much effort you can and want to put into it, but the important part is that it is something that is talked about. Whatever method you use, take the opportunity to explain to your kids how things will work when they go out on their own and help them set up good habits now that will serve them well later on. Hopefully these ideas have gotten your creative juices flowing. Let us know what ideas you have come up with for teaching your kids!