The concept of money is not something that comes to anyone in the middle of the night and they wake up the next morning all-knowing about money management and their finances in general. This takes years of learning and even more years of actual experience to get a good handle of. Even then, there are still a lot of people who gets into financial problems and deals with a lot of debt.
And for consumers who are starting to grow a family of their own, their finances is a roller-coaster ride when children comes into the picture. As much as a new child will affect the household budget, they also need to take time out to teach your children how to manage their own finances. This helps ensure that they are able to make smart money decisions in the future.
As Statisticbrain.com shares that there are about 115,227,000 households in 2014, this means that children are running about in these households. And with the number of children increasing in parallel with the number of households, being able to teach the concept of money to these children becomes more important because in a consumer-driven economy, they will be the future consumers in the country’s economy.
There are some parents who struggle explaining money and finances to the children because they themselves are struggling with their personal finances. They might be missing some cues with their household budget that they are unable to impart knowledge to their children. Or it can be that some parents do not believe their children will be able to grasp financial lessons early on.
Get kids to understand money
When parents are able to impart the concept of money to their children, it is a win-win situation for both the kids and the parents. Here are some ways you can look into to help impart the concept to their children.
- Understand the concept that money represents labor. One idea that you can use is to equate money with labor. Simply put, you need to explain that money comes from hard work and is often commensurate to the amount of hard work they put it. You can let them experience this if you let them clean the lawn or even clear up snow off the driveway in exchange for a few dollars. This can help them understand the concept of how money is in relation to labor or hard work. But you need to be cautious as well because you do not want to give them the notion that they have to be paid for house chores.
- Spending and investing are two different things. Investopedia.com shares that an investment is an expense that appreciates in value overtime. This is the biggest difference it has over regular spending which you need to let your children understand. It can be as simple as their food choices so they can understand easily. Given the option between sweets and fruits, you can illustrate that the sweets will just meet a temporary craving but the fruits is an investment on their health because it gives their body vitamins and nutrients. The same with the concept of money, it is best used for things that brings value.
- Keep in mind how consumer credit works. There are a lot of parents who are dealing with credit card debt incurred by children that is why teaching them how it works early on can help them in the long run. But this should not only be about credit cards and should include other consumer loans like payday loans. They need to understand that the credit card is not a magical plastic device they can use whenever they want.Regardless of the amount, they are still loaning money from lenders who are secretly wishing you pay minimum every month so they can add interest rates to succeeding statements.
- Identifying wants from needs. The concept of money has a lot to do with how children process their wants versus their needs. You can start with their clothes or shoes to help impart the difference between the two. They obviously need clothes and shoes to wear everyday but at some point, they might want to buy another pair of shoes or a new dress because everyone else in school has new ones. You can try to explain to them that if the ones they have can still be used, there is no reason to buy new ones. This will hopefully stay with them and prevent impulse purchases in the future.
- Money brings choices not happiness. This is something that will take time to nurture into your children’s hearts and minds but this is something that will help them fully understand that the concept of money doesn’t buy happiness and that it is just a tool in life. The problem is that there are people who only thinks about money and everything that they do is ultimately about money.
How to keep your credit score up
When you are trying to impart financial wisdom to your children, it serves you best to be on top of your game to be able to practice what you preach. Your children might easily forget the words you tell them but if you consistently lead by example. And one way to do that is to keep your credit score up. Here are some things you can do to help make that possible.
- Take advantage of free credit score. You are entitled to one free credit report every year from the nationwide credit bureaus and you need to take advantage of this. One thing this gives you is that you are able to identify mistakes in your report and be able to correct them immediately. If you are also reporting your children social security numbers for tax purposes, you also need to check their credit report. The concept of money must also ripple out to financial security.
- Take note of your due dates. There are times that you will have too much work and might overlook some financial obligations not because you want to get one over your lender but you just simply forgot about it. Consider automatic transfer because one way to grow your money is to make sure that you do not throw away any towards fees and penalties from missing payments.
- Do not keep on adding credit cards. You might think that it helps you prepare for emergencies when you have a lot to pull loans from but this also means that you can be tempted many times over. As you add debt, you increase your credit utilization ratio and Credit.com shares that the lower the ratio is, the better it will be for yoru credit score.
- Be sensible and stick to your budget. This is where a lot of people falter because it is so easy to add things to a grocery cart or to step in a store with a big sale on the the window pane and step out with multiple shopping bags. Children might also think that it is okay to go over budget because you can pay for them with your reserve funds. You need to be a good example to them and make sure that you are able to follow that grocery list and you are not tempted by big red sale signs in stores.
The concept of money can be best understood by children if the adults will serve as great examples. These children will benefit greatly from this mentorship from the way they save up to how they take out student loans and even when they are dealing with their own household budget in the future.