Understanding the importance of setting money aside is a crucial matter and it’s never too early to start saving money. This is not an easy task in today’s world, where most of your children’s desires are linked to material objects. The thought of financial responsibility is more often than not an abstract one since the said desires are being met by parents. Here’s the roadmap to teaching your children financial responsibility so that they minimize money related faux pas when they grow old.
Start by practicing what you preach. There’s no way you can pass on financial lessons you do not follow yourself. Spending less than one earns, getting rid of debts and working toward large financial goals are concepts a child should be accustomed with from an early age. And there’s no better way to normalize it than by talking about it.
You can even go a step further and let them become more familiar with the family’s budget. How do bills actually work? What can one do to reduce the the cost of a trip to supermarket in order to allocate the saved amount on more enjoyable activities or desired gifts? Comparing prices certainly helps.
This will ultimately help your children realize that money really doesn’t grow on trees, or pop out of the ATM and it is never too early to understand that one needs to earn the things he wants. This is done through sacrifice and hard work. Therefore, you can also encourage them to go on their very own little entrepreneurial venture: a paying show, homemade cookies, a lemonade stand or handmade cards are a great place to start.
A consistent allowance policy also helps. Not only does it teach children the cycle of money management, it can also give them a sense of responsibility by giving them the opportunity to save money to get the things they want.
Talking about things they want, you should help them prioritize. Make them work on a wish list and think of long-term goals too. How about a graduation trip to Europe or even a down payment for a house of their own? You can then help them allocate a part of their allowance to each goal.
A known rule of thumb states that 10% of “incomes” must go to donations, 20-50% to savings and the rest can be spent. However, it is also good to have your children learn from their own mistakes. When they are young, the financial loss won’t be so great. Rushing out to spend their birthday money on things they do not really need and realizing they don’t have enough now to buy that videogame they really wanted is sure to leave a mark while causing minimal damage.
Teaching financial lessons is one of your most important tasks as a parent. Succeed in this and you are sure to help your children pave their way toward a financially smart future.