Teaching Kids To Manage Money
January 26th, 2012 by audreyTeaching kids to manage money is one of the most important things to teach a child before they go out on their own. The surest way to fail financially, no matter how successful a person is in their career, is to manage money poorly. This is definitely not a lesson for someone to learn on their own.
From the time children are young, they should be given the opportunity to learn about how to manage their finances. They need to understand that credit cards are not a free flow of money. They need to understand that checks are useless without funds in the bank to over them. They need to learn how to budget and how to save some money for long term goals and emergencies.
Many teens, college students and even young adults slip right into living off credit cards. As soon as they’re legally old enough, they apply for a credit card and then spend until they reach the limit. This is horrible for a persons credit and they will be paying this debt back for years upon years. Young adults need to understand that credit is okay to be using in emergencies and when it is not an emergency then it should only be used when there is money to pay it back within a reasonable amount of time.
It is very important to teach children how to balance a check book. They should always know how much money is in their account. This way they won’t run out of funds unexpectedly and be unable to pay their bills, or to bounce checks and incur bank fees. Too many young adults fail to plan ahead and set up a budget. They spent too much on non-essentials and find themselves unable to pay for rent or food. They need to learn ahead of time that they have to pay for the essentials first before they allocate money to other things.
Saving up for a rainy day seems to be a lost art these days, even among adults, but it’s important for young people to learn the importance of saving. Savings should be a regular part of their budget and should be deposited into a savings account for kids regularly. Everyone should have enough savings to live for at least six months in case they lose their job or have some other unforseen problem. Savings also come in handy when there are surprise expenses like car repairs. Too many young adults run into problems and have no safety net. They call on their parents to bail them out, but at a cost to their independence. Besides, mom and dad might have not have the money available to help out.
Parents should help kids learn to save early. Start with a piggy bank and then move up to a savings account when they’re ready. Give them the opportunity to earn money by doing chores. Help them set a goal by picking out something they really want, but is too expensive to buy immediately, then make a plan to save up for it. This will help teach them the process of saving. Then allow them to go out and make that purchase once they have more than enough saved up. The positive experience will reinforce the idea that it’s worth forgoing immediate gratification to get something they really want later. Once a child is old enough to understand math then allow them to start using a check book to keep track of their purchases. This will put spending down in black and white so it’s easy to see. It also has the side benefit of answering the age old question, “Why do I have to do math?”
A lot of banks offer pre-paid debit cards that children and teenagers can use. This will help introduce them to the world of electronic cash. This is a good way to teach them that these types of cards do not mean that there is a never ending cash flow. Remind them to keep track of their funds and to be careful with their savings.
As soon as kids are old enough to want something in the store, they’re old enough to start learning about money. If they learn how to manage $5 when they’re young, they’ll be better prepared to manage their salaries when they grow up. It will benefit them in so many ways and will help them to succeed in their life in so many ways.
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