Financial lessons can come from different sources such as school and even books. But the first lessons for most things in life, including finances come from parents. The home becomes the first classroom for kids to learn just about anything in life. From character formation to household chores and especially the way they manage their finances for the future.
The scary part is that as much as kids learn from what parents actually teach them, they also take away learnings from what they get to observe. If you are a parent, there are great ways to practice money management with your kids but you also need to keep in mind the things you do and say has an equal amount of effect on how they pick up financial lessons around the house
You cannot afford to tell them how to use their money then squander off the next opportunity you get. It is hard to decipher mixed signals and might choose to follow your actions. This is going to be a problem for them as well as for you in the long run. When they run through financial hardships in the future because of mismanaging their money, who do you think will they run to in the middle of the night to ask for help?
Wrong financial lessons for kids
If you have children around the house and you want to keep them in line with their finances, here are a few lessons you might want to rethink. Teaching them these might seem to be a good idea but could negatively backfire in the long run.
Attend the best college out there
A lot of parents just want to have the best life has to offer for their loved ones and this includes higher education. But at present, college and post-graduate studies usually means student loans simply because the cost of attendance is too high. There is a tendency that the best and branded schools in the country comes with a high price tag. It would be a different scenario if the parents were able to save up for a huge college fund for their kids. CNBC.com shares that there are more younger parents who are planning to pay for the full cost of their children’s college education because they want to spare them from the same experience they are having with thier own student loan repayment. But if the children are on their own and they do choose to disregard the future implications of taking out massive student loans just to graduate from a premiere school, they are looking at repayment that can stretch out to years even decades. They are already deep in debt even before they start their careers and there are financial lessons parents can teach their kids to help prevent this from happening.
Buying things upfront for the kids
There are financial benefits of saying no there are instances when parents are unable to say no to their children when asked to buy something that they want. Just to get it over with, they buy it and arranges a way for the kids to pay them back either with chores or part of their allowance money. This is a dangerous financial lesson because it overlooks the need to save up or plan for purchases. If it was an important purchase such as materials for school or for a sport then parents can shoulder those purchases. But if they are wants like clothes, toys or games then it might be better to have the kids save up for them first before buying. This instills a great lesson that if they want something in life, they have to put in the work first before reaping the rewards.
Parents are always there to pay the downpayment
You want your children to have a good life and you try to do everything you can to help them make that happen and there are financial lessons you need to stay away from when you start teaching your kids. But in the process, you sometimes forget that they need to be able to learn and do things on their own just like their down payment on their home. If they are asking for financial support from you so they can afford a down payment on a property or even help with the monthly mortgage payment, they might overlook the fact that the house could be well over their financial capability. What can happen is that they get deeper and deeper in debt as time goes by and the time will come that they either cannot meet the payments any longer or just let the property go into default. If you want to help them, make them understand that a mortgage loan is a long term commitment and they need to be able to afford it on their own financial capability to keep the property.
Credit card minimum payment is acceptable
Credit card use is already an ingrained payment option in the overall financial industry in the country but sadly, there are people who still believes that paying only the minimum amount on their cards are the way to go. Creditcards.com shares that people carry an average balance of about $7500 in their cards. If you exhibit this attitude towards your card and your children pick up the same habit, they are headed down a path of never ending debt and interest payment. There is no truth that carrying a balance is a good way to manage the credit score. The only thing increasing in these instances would be the amount that you are paying in interest, fees and other charges to your lender. The best thing to teach you kids is to pay off the full amount as soon as your statement comes in. This helps them manage other debt amounts and increase their credit score in the process.
Refinancing the loan is always the best
Refinancing a loan is a great way to lower down monthly payments but this is not the only thing you need to be looking into. One big factor in this approach is your credit score. If there have been significant improvements in your score from the time you took out your loan to present then there is a big chance you would be approved for a lower interest rate. If your score dropped from the time you took out the loan then you would just be prolonging payments at a higher rate. You also need to look at your age because refinancing too close to retirement might not be a good idea and could send the wrong message to your kids. Gallup.com shares that majority of Americans are looking to retire around the age of 65. They might think that it is okay to carry debt accounts during their retirement years.
Using credit cards just for the points
There are tips to manage credit cards wisely but there are people who are using their credit card to pay for big purchases to take advantage of points and other reward options given by the lender. This is a great strategy only if you are able to make full payments on the card at the end of the month. If you add on debt after debt just for the points without any plan to pay the statement in full then you are imparting the wrong financial lessons to your kids. You can use the card to take advantage of points only if you pay the full amount at the end of the month. You do not even have to wait for the statement and pay the card as soon as you use it. You then show your kids how you are able to use the rewards or points to save on future purchases like discounted airfare or lower hotel bookings.
There are financial lessons parents need to refrain from in order to help their kids be more self reliant when they get older and bigger. When they start managing their own finances, they will hold on to the lessons you teach the today to get them through the tough situations tomorrow.