Financial wisdom is a necessity in life. Especially now that consumers are beset with multiple types of debt problems. There are households who has to juggle multiple financial obligations while reaching for their long-term goals. The house has to be paid because they took out a mortgage loan for it. The car is still has a balance with the bank. And some are still paying for the cost of attendance for higher education they took years ago.
These financial obligations are concerns of parents in a household. However, parents need to add one more responsibility to their growing list. It is critical that they be able to teach their children about the importance of financial management. This is because as they grow up, they stand to inherit the same financial obligations you are carrying right this minute.
In light of this, you need be very aware of the types of financial wisdom you impart to your children. The last thing you need is to imprint bad financial lessons onto your children. They would have a hard time coping and managing their finances when they are all grown up. The sooner you set them onto a straight path, the easier it would be for them in the future.
This responsibility is more challenging with the fact that WSJ.com shared an article on the financial literacy of Americans. They say that the country ranks 14th in the world when it comes to financial education. This is a cause of concern and parents need to take the initiative to impart proper financial wisdom onto their children.
Here are a few things you can start off on as you try and prepare your children for their future.
You trade off freedom with debt
One of the key points you need to make children understand is the trade off. They usually see how you pay for the groceries with a credit card. Or how that pretty little dress was paid for over the computer. However, they need to understand that it costs money and that charging an item is synonymous with taking out a short term loan.
They might have a hard time wrapping their thoughts around this especially for the younger ones. The way around it is to explain that you lose a little bit of freedom with each debt you take on. It means that you have to work a little longer on some days. Or it can even result to postponing that family trip because you need to pay off debt.
Spend only what you have
This is a good follow-up to the first one as it gives them an idea on how to avoid debt. Debt consolidation is an excellent program to help manage repayments when you are already having trouble. However, it might be a good idea to show them ways to not get into trouble. One of them is a sensible use of their credit cards.
The first thing you need to tell them is that your credit cards are not magical payment wands. One swipe and an item are paid for. Let them in on what happens behind the scene. Show them your monthly statement as it comes. Bottomline is that they should try to avoid charging purchases on their card as a good starting point. Yes, there are benefits but teach them first to spend only money that they have.
The small expenses add up and hurt you
It is pretty frustrating when you get blindsided by a huge surge in your expenses. Only to find out that they were the little ones you did not pay much attention to. It is easy to plan and prepare for big ticket items – house, car and even new appliances for the house. However, it is often the small ones that catch you off guard.
In line with this, it is a good idea to teach your children to be mindful of their expenses regardless of amount. The more they pay attention to it, the better they can see the whole picture. It might not be a big deal but that signature coffee every morning can be ruining a perfectly laid out budget. A few dinners with friends can have the same effect especially if they do not keep tabs of the expense.
Define wants versus needs
One of the most common financial pitfalls consumers go through is blurring the lines between their needs and wants. This is something that needs to have clear guidelines from the beginning. As you teach your children, it is best to give them specific examples of each. This can help them differentiate the two by themselves when the time comes.
It can be as easy as food being a need and that expensive dinner being a want. Shoes are classified as a need but those retro sneakers are just wants. A house is a need but that mansion on the other side of town is a want. There are a lot more examples you can share with your children. The important thing is that they get the idea of how to tell one from the other.
Learn the value of working to have money
Work is the input and money is the output. This is one financial wisdom you can share with your children. It helps them connect and understand the importance of working to have money to buy things. Let them know also that getting work is a work in itself as Gallup.com shares a 9.2% unemployment rate in the country.
You can start them off with a few chores around the house and give them an allowance for it. Don’t pay them too much that they get the wrong impression that work is easy. Make it a regular habit so they get the idea how they need to work to get money in return. No one got rich by just sitting on a couch all day.
Learn how to budget
With the money they have, it is now a good time to teach them how to budget. It can be as easy as giving them jars to fill up. You can help them label the jars. There can be one for a toy they really like. Then another one for those shoes they want to buy. They can even have a jar for their college fund. The important thing is to teach them budgeting basics.
This financial wisdom will serve them well in the future especially if you have to rely on them to help with the real household budget. There is a good chance that you have little time to monitor your expenses because of work. Especially as Pewsocialtrends.org shared that there are more and more couples who are both working full-time jobs. You might just have to rely on your children with some budgeting help around the house.
Invest in your health
Financial wisdom is not just about money. It also means taking care of your physical health. Teach your children that as important as finances are, nothing is ever important as their physical health. It helps them live longer, enjoy tie with family and friends, and even to earn more. Of course, they need to put in the work such as eating right and exercise to be able to take care of their body. The earlier you build a habit of being mindful of their health, the more it becomes second nature for them
Do not get caught up with other people’s success
Teach them not to compete with the Joneses. Their only competition would be with themselves. Teach them also how to balance contentment with their ambitions in life. It is not wrong to have goals. In fact, it is one of the integral parts of having a successful financial plan. It just has to be something they want in life and not something they saw the neighbors have.
Financial wisdom is something you need to pass on and teach to your children at an early age. The reason for this is that the earlier they are exposed to best practices, the more it becomes a habit.