You can teach them to automate their payments and show them just how important this is in your own example. This will ensure that they never miss a payment.
Your child’s financial literacy is your own responsibility. Sure, you can rely on them to acquire this skill on their own once they’re old enough. However, taking some time to do it now is something that they will be forever grateful for. Traditional education doesn’t care much whether your child will be financially literate or not. In other words, it’s all up to you. With that in mind and without further ado, here are the top seven tips to help you teach financial literacy to your kids.
Make Them Earn the Reward
Whenever your kids want something, make sure that they don’t get it for free. The task that they perform doesn’t have to be hard to complete. It doesn’t have to take too much of their time. In fact, it would be ideal if the task was proportional to the reward. For instance, if they want a new gaming computer, make them earn this through the grades on their finals. If they want something minor, a week-worth of chores should do the trick. This will teach them two important lessons:
- You won’t get anything for free.
- The value of your work is proportionate to your reward.
This lesson alone can help set them on the right path.
Help Them Develop Intrinsic Motivation
Kids often learn through popular culture, but they only do so if they find it interesting or relatable. This is why they’re more likely to immerse themselves in a movie than a documentary. It is also one of the reasons why parents prefer to use methods like theatre for children in order to ensure that their kids receive a powerful message. Depending on the play, the skill of the actors, and your kid’s personal interests, the message may be received quite strongly. On the other hand, it is also important that you choose the right play.
Teach Them about the Value of Investment
Labor seldom generates wealth. Wealth generates wealth, and the most effective way for it to do so is through investments. So, try to teach your kids why and how they should do this. First of all, make sure that you open their custodial brokerage account before they are 18 (due to their legal age, only you can do it). Second, make sure to explain to them how this works. Keep in mind that if you’re not a professional investor yourself, some of your knowledge on this subject matter may be limited or even outdated. Instead, enlist them on a couple of courses.
Help Them Understand the Credit Score
Their credit score will help them get a good loan whenever they need one. Even if they aren’t struggling financially, loans are the best way to fund certain purchases. Credit score factors are:
- Repayment history
- Amounts owed
- Types of loans
- Length of credit history
- New credit
Right off the bat, it becomes more than evident that, as a parent, you can affect a couple of these with your advice. First of all, you can teach them to automate their payments and show them just how important this is in your own example. This will ensure that they never miss a payment. Second, the sooner you help them open their credit card, the better. Why is that? Well, because it will prolong their credit history by giving them an early start over the rest of their generation.
Teach Them About Uncommon Scenarios
Try to explain to them the fact that financial issues can’t always be solved through financial means. For instance, when facing trouble with debt, you may have to find the right debt settlement attorney. When others owe money to you, you may have to work with a debt collection agency. Moreover, when facing a scenario in which they’re facing a cash shortage, teach them how they can instantly cash in their invoices by selling them to a factoring company.
These are the little things that the majority of people believe they’ll never use, yet, they come up more often than you would expect them to. In order to ensure that they never become a problem, you need to teach your kids about this way ahead of time.
One of the first arguments that people make about the educational system is that while spending countless hours on algebra, they never bother to teach students how to report their own taxes. As a parent, you have a chance to make this right, but you can’t just start there. First, you need to explain to them what taxes are, why they need to pay taxes and warn them what happens if they skip this step.
Also, if you have the time, you should break down certain aspects of taxation to make the topic easier to absorb. While they are particularly young (pre-high school), it’s enough that they know what taxes are. As they grow and their understanding of the subject matter expands (they know more about the finances), you need to teach them more about details like returns, deductions, etc.
Budgeting Makes the Difference
Your income is incredibly important for your financial wellbeing, but if you can’t manage how much you spend, it is never going to be big enough. This is why you need to teach your kids how to budget, how to save, and how to assign priorities. The simplest, and by far the most effective, way for you to do so is to give them a small quantity of their own money. An allowance will give your kids a simulation of what it is like to have a regular income. So, even if you believe that they’re not spending it wisely, let them. Later on, you can turn it into a lesson. Learning by example (and your own mistakes) is incredibly effective.
In the end, financial literacy may also depend on your country or state, which is why it’s important that you’re the one in charge of their financial education. The resources they find online may be valuable, but if they’re not critical of the source, they can also be misleading, invalid, or outdated. In other words, self-education is great but deeply flawed as a concept. If you want something done right, do it yourself.