Finances are one of the most fundamental parts of being an adult. There are few things that are more important for navigating independence than understanding how your finances work and how to improve them. There are so many lessons you will teach your children that will help them as they grow up into young men and women. Among these lessons is how finances can make or break your life. By explaining the importance of income, savings, and investing early on in life, your child will be better prepared for adulthood, and it will be one less unwanted surprise when they leave home for the first time.
Setting Up a Bank Account
One of the first things you want to do to teach your kids about money management is make it concrete. Establishing a free checking account at a local credit union, especially one that you already bank at or one that you know is a trusted establishment is one of the best steps you can take to teach your children about financial wellness. Many banking institutions will have free checking accounts available for children under the age of 18. Some even have online savings accounts that will begin to build interest over time. It is better for your kids to have a bank account of their own instead of relying on something like a piggy bank. If you already bank there yourself, you can even have your account tied to theirs to help monitor their spending and continue to instill good financial habits. It’s never been easier to get started.
One of the least understood aspects of your financial well being is also one of the most crucial: the credit score. Teaching your child the importance of good credit and the dangers of utilizing risky credit will protect them. Consider adding them to one of your own lines of credit to help them establish credit; be mindful that you only add them to a line that is in good standing, and if it doesn’t stay in good standing, remove them. Being open about how good credit can make it easier to get a job, an apartment or house, a car, and even good car insurance in some states might seem like it will go over their heads. Having these conversations early, though, creates a common language and is a lesson that you will be able to draw upon in the future when they actually need to understand why credit matters and how to build it up over time. We always teach our kids about the consequences of our actions, and the credit score is one of the best real life examples of how your decisions now can affect your life later.
Learning to Budget
How much easier would your life be now if you had started to budget earlier than you did and actually stuck to it? Young children already know that it takes money to buy the things that they want, and it takes money to furnish the lifestyle that you have. But what they might not understand is how money is divided up to pay for your bills and these individual purchases. Showing your little ones how to budget takes the guesswork out of healthy spending and saving habits. Doing so when they are younger creates a habit. In other words, if you start them out with a budget when they are younger, they will be more likely to stick with it as they grow up and are out on their own. You can even give them different budgeting scenarios to help turn the learning into a game. They will be able to problem-solve in scenarios where they don’t make enough money to sustain their lifestyle, and they will be able to see that hard work and smart decisions can lead to an easier life down the road.
Teaching your children about finances is a lesson that will last their entire lives. The sooner they learn about strong spending and saving habits, the more prepared they will be for facing the world on their own. For a lot of young people, finances are a complete mystery, so breaking down what finances are and how they impact your life in the short term as well as in the long term will have nothing other than a positive effect.