Making Financial Lessons a Family Tradition
Teaching children manners and how to tie their shoes is one thing, but financial lessons are often pushed to the wayside until it’s too late. Budgeting and financial planning should be a focus in every household. Whether you are passing along your lessons to your children, nieces or nephews, keeping financial sense in the family can have longstanding benefits.
Here are some financial lessons you can teach children before they leave home:
How to Budget
Whether it’s through a household budget that you let them become a part of, or a weekly allowance on which they have to determine how to spend and save, budgeting is a skill they will be able to use throughout their lives.
Show the younger generations how to budget for monthly expenses, such as a mortgage, groceries, utility bills and other expenses, and then show them what your monthly income is. If the expenses are higher than the income, then work together to cut expenses and live within your means.
Go Over Automatic Payments
Discuss the importance of an emergency fund, retirement account, vacation fund, college plan or other long-term expense that you save money for. Show them how you contribute to it monthly with an automatic withdrawal from your checking account or paycheck every few weeks or so.
From there, you can go over how compound interest works and how earning interest each month can pay off.
Preparing for Emergencies
Big expenses pop up in life, and it’s a good idea to be prepared for them financially. If you have an emergency fund, explain what it’s for and why it’s important. You may be saving to have 12 months of income in case you lose your job, for example. Or you may be saving to buy a new car in a few years because the car you drive now is having a few too many mechanical problems lately. Whatever the reason, point out how an emergency fund can save you from going into debt with a credit card to cover such expenses.
What Debt Looks Like
A credit card debt calculator is an easy way to show adolescents how credit card debt can be overwhelming.
You can use your own credit card bill as an example if you don’t mind sharing the details. Show how long it takes to pay off the balance by only paying the minimum balance each month, versus how much more you’d need to pay to clear the balance within a year. That may be enough incentive to get them to avoid credit card debt entirely, and to start an emergency fund soon so that they don’t have to use a credit card to pay for expenses that pop up.