Teaching financial responsibility falls into the lengthy job description of a parent. The topic of money intimidates many people. Parents feel at a loss about where to start. An excellent place to begin is with their allowance. You can then introduce the idea of saving for items they want to buy. As they age, begin to teach your kids how to balance a checkbook and explain basic financial information.
A recent study found that young adults are most stressed about paying off college debt and lack financial literacy. They are also concerned about their lack of investment knowledge or when to take a risk. These young people believe they will never achieve what their parents did, such as owning a home or the ability to retire at the average retirement age.
Financial education should be a regular part of family discussions. I have created a few beginning steps to help you encourage your child to feel more financially knowledgeable and understand how to manage money early on.
1. Open a bank account for them. You can use the bank statement to show your child the principle of interest and how their balance will grow by their deposits and interest. Set up a small regular deposit and demonstrate how even a tiny recurring deposit will grow to a much more significant amount over the next 5 – 10 years.
2. Ask your young child to select a toy or desired item, then research the price online. Calculate how long it will take to accumulate the money to buy the item if the child saves $1 a week, $5 a week, and $10 a week. This exercise can demonstrate savings accumulation as well as the value of money.
3. Have your teen start saving for their first car. Discuss the total costs of owning a car: car payments, gasoline, insurance, property taxes, maintenance, and repairs. Assist them in determining how much money they need to save each month to afford a car over the next few years.
4. If your child is a teen or young adult, use similar examples to demonstrate how saving a small amount of money each month beginning at age 22 will yield a large sum when they retire.
5. When making a significant purchase for your family, such as buying a new appliance or car, involve your child in the decision-making process. Share with your child what your budget is for the purchase. Let the child help research options within your budget. Discuss how you will pay for the purchase. Have you saved up the money needed? Will you use a “buy now, pay later” plan to purchase furniture or an appliance? Will you take out a loan? If you will borrow money to buy a car, share with your child how you decided whether to borrow from your bank or through dealer financing.
These 5 steps will encourage discussions that will help your child understand the value of money, the power of compound interest, and the cost of borrowing. Instill in your child the value of living beneath your means, long-term savings strategies, and the importance of minimizing debt except for mortgages and other investment opportunities.
For more ideas on how to manage your finance and train your children to use money wisely, my book Honoring God with Your Money is a great resource.
Susan's Reflections 