Managing money isn’t a natural and innate skill, which can make it easy to make a lot of mistakes as an adult. For parents who want their children to learn good money practices, it’s never too early to begin teaching important lessons that they can utilize throughout their life. Here are a few ways to teach kids good spending and borrowing habits.
Create a Budget
Helping your child to create a budget gives them another tool they can use to avoid overspending. Consider using a finance app where they can enter how much money they earn and determine how much they have left over every month. The extra wiggle room they have in their budget can be used for savings or charitable giving.
Give Them a Payment Schedule
Paying bills is one of the main parts of managing money. If people can’t pay their bills on time, they may face late fees or even utility shut-off. Help kids learn how to be responsible for their expenses by giving them a payment schedule. Learning to pay bills on time is critical to building a good credit history, and that credit history will impact them later in life. Help them to create a list or put reminders on their calendar to ensure they can make the payments on time and are aware of what they owe throughout the month.
Although you may not want your child to ever get into debt, the reality is that they’ll need to borrow money at some point when they’re ready to purchase a house or a car. Discuss the cost of interest and how it’s added onto their payments, which can allow them to understand how acquiring debt works. Instruct your kids to research the best interest rates and do their homework on fees to ensure they understand. If your kids need to borrow money, always add interest to help them learn how debt works and be more motivated to save for the purchases they want to make.
Learning how to establish goals is important for your child to learn if he or she is going to save up for large expenses at some point in life. Help your child to establish goals that they can begin to work towards with their finances, which will teach them patience and discipline. Teaching them these skills while they are young could help prevent problems with too much debt in the future. Some of the goals can include saving for a new purchase or even paying off debt.
Teaching kids good spending and borrowing habits can allow them to learn invaluable skills that pay off in adulthood. Spending a few minutes with them teaching them these principles now could save them years of financial hardship when they are older. It’s easier to learn the right principles and practices early on than to establish bad habits and have to backtrack and learn good spending habits when they are older. With the right practices taught early on, your children will be more likely to carry on the same habits you’ve taught them as they get older.