Talking to our kids about money is one of the most important conversations but a lot of times we fail to have it. It’s challenging to explain the concepts, and most kids aren’t as interested in money now as they will be later in their lives.
But research has shown that the sooner you start talking to kids about money, the more stable they’ll be financially in their futures. And with April being Financial Literacy Month, there’s no better time than now. Indeed, one of the principles behind Financial Literacy Month is that too many Americans are insufficiently educated about money.
Here’s a look at five ways you can teach your child about financial responsibility:
1. Give Them an Allowance
People often have differing opinions about giving their children an allowance. One of the positives of an allowance, however, is that it lets kids see that work and money are connected. In turn, that helps them not to be financially dependent on you, and it can build in them an entrepreneurial spirit.
Experts say that the foundation of an allowance is consistency. You won’t teach your child useful lessons if you constantly change your allowance policy.
2. Help Them be Disciplined Savers
As a parent, you understand the catastrophe that would result if you immediately spent every dollar that you received. Children should never feel that rapid spending is normal or good behavior. Help them set savings goals, while also getting them to understand that saving at least a portion of what they earn is normal and healthy for their financial future.
If you consistently talk to your children about financial strategies and goals, the more important they will become to them. For example, explain to them why you’re saving for retirement and how you’re doing it. Most importantly, communicate with them in a mature manner, they’ll be sure to listen.
4. Teach Them About Debt and Credit
It’s important that your children understand at an early age exactly how borrowing works. One strategy that’s helpful is to loan your child a small amount of money, charge them interest (5% is a good number), and after they’ve repaid the loan, show them how much they paid back compared to the original loan amount.
For kids who will take out student loans or will use credit cards on a daily basis, it’s extremely important that they have an understanding of debt and credit when they’re younger.
5. Discuss College Funding with Them
If you’re helping your child to pay for some of their college education, it’s important to explain to them what you can afford, and whether they need to be proactive about scholarships and financial aid. Have them help you fill out scholarship and financial aid paperwork.
If your child is considering a student loan, talk to them about how much they’ll need to pay monthly, and reiterate your earlier lessons about the power of interest. In some cases, it can be the difference between picking a ‘dream’ college and one that’s affordable.