It is in the interests of both the kids as well as the parents that children understand how money works, where it comes from and how to handle budgets, so teaching your kids about money is crucial for all parents.
Suze Orman, a financial planner and columnist with Yahoo Finance recommends the following 5 good habits that will help you in teaching your kids about money–
1.Kids are used to seeing their parents put a piece of plastic in a machine, press a few buttons and receive a wad of currency notes at the ATM.
It is imperative to teach kids how the ATM actually works; that money is earned, then deposited in a bank and then that money is withdrawn via the automatic teller machine and the earlier this is done the better it is.
2.Plan shopping and curb impulse spending. When there is a visit to the mall planned, discuss what is to be bought, the budget for that shopping trip and the fact that choices are to be made within those parameters.
With online buying making up a significant proportion of our shopping habits today, similar parameters set for online shopping will also help in teaching your kids about money.
3.Let kids understand that if one expensive purchase is to be made, others will have to be sacrificed. Explain why and how bills are run up and how they are to be paid; perhaps an older child can help with this, bringing home the important concept that nothing is free.
4.Just because you can afford it doesn’t mean that you child should get extravagant gifts for no reason. Gifts should be for some occasion if kids are to value them, so if there is a demand made by a child it can be gently suggested that this purchase can become their birthday or Christmas gift.
5.Educate kids about credit cards and the way they work; and the fact that when payments are not made on time, this can mean huge amounts of interest becoming payable. Teaching your kids about credit cards and instilling good credit card habits is an important part of their economic education.
Additionally, as and when a child is old enough to absorb these concepts, they can be introduced to a child as a part of the process of teaching your kids about the money –
- Taxes should be explained to the child as something that has to be paid from the paycheck in order that we have a police system that works, roads to drive on, and other public facilities and so on. This way, when a teen receives their first paycheck and sees the deductions, this won’t come as a shock.
- Also introduce the concept of saving and investment. Starting a savings account early on for a child makes them aware of stashing money away for a rainy day and the importance of self reliance when in need.
- Introduce the concept of charity. As part of teaching your kids about money let them learn some salutary lessons about others who are less fortunate than themselves and about how it is possible to help out others by making small contributions.