According to research, from the age of three, children start understanding the concepts of saving and spending. By the time they reach age seven, they have already developed basic spending habits. As parents, it is important to focus on making your child financially literate in addition to teaching them other good habits. Here, we lay down various ways to introduce financial education to your child and make them confident with handling money.
Model The Behavior You Want to See
As the parent, you are the role model for your child’s financial behavior, hence it is important to remain conscious about your spending habits. When out shopping with your child, avoid buying things that are beyond your budget or engage in impulse shopping. Instill the habit of pre-planning what to buy and sticking to the shopping list while at the store.
Additionally, if you find yourself lacking the knowledge to handle finances, take the time to educate yourself. This includes learning how to make budgets, the basics of investment, debt management, and more. Only when you are confident in your financial abilities will you be able to pass it on to your child.
Teach Them How to Spend
Make your child work for the things they want instead of buying them. For example, if they want a new action figure or clothes, assign them chores through which they can earn. Once your child enters the real world, they will quickly realize that their wants will exceed their income. However, a child with years of experience dealing with this scenario will be well prepared to handle expenses and be smart with their money.
Additionally, as children are exposed to numerous advertisements from clothing companies, toy manufacturers, fast food chains, and more, these advertisements influence them to want products that are branded and overpriced. According to research, Americans overspend $7,500 a year on average. To ensure your child doesn’t fall prey to this trend, teach them to make decisions based on utility rather than brand. This will involve changing your buying habits as well, for example instead of buying clothes from prominent retailers, opt to visit your local clothing store.
Focus on Homeownership
Currently, young adults across the country are struggling to become homeowners due to rising housing costs and other economic factors. However, a prominent reason is also the lack of planning. Teaching your child about homeownership from a young age will help them overcome the financial hurdles they face in the future. Here are two important concepts to focus on relating to homeownership:
● Good Credit Score: Use your credit score report and teach your child how you built your score. Such as paying credit card bills on time, maintaining a strong debt-to-income ratio, and more. Additionally, explain the mistakes you made and the time and effort it took to overcome them.
● Interest Rates: While you don’t have to get into the minutiae of interest rates, you can give your child a rough idea of how it pays to have a lower interest rate. Explain that the lower the interest rate, the lower the mortgage payment can be depending on the type of home loan acquired. You can even show them an online calculator for figuring sums.
● Property Taxes: Expose your child to the concept of taxes, how they are calculated and how to budget for them accordingly. Property tax is a prominent expense all homeowners incur that is calculated by multiplying the property’s value by the millage (tax) rate. It can differ based on location and market conditions.
Make them Run a Business
The best way to help your child learn financial management is by encouraging them to run a business. This can include pet walking, selling crafts online, the classic lemonade stand, and more.
Push your child to plan how they will afford to buy supplies to make and market their product. The challenge of answering these questions will force them to think like an adult and find ways to generate funds, create budgets and spend within their means.
If your child is stuck, provide them with the following financing sources:
● Using their personal savings
● Using your credit card and agreeing to pay the money back in a set amount of time
● Taking a “loan” from a family member and repaying it with interest
When it comes to making your child financially literate, strive to strike a balance between teaching and practice. Involve them in creating monthly budgets, make them earn their allowances, and guide them in developing good spending habits.
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