Monday, July 31, 2017

How to Be Your Child’s Financial Role Model

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Do you know what stinks? Schools don’t teach personal finance, at least not until well after children should already know something about money management. But that's okay because teaching children about money isn't that hard. You can show your kids the importance of making smart financial decisions ― even if you've made financial mistakes yourself!

We already know that teens, especially teens 15+, score pretty low on personal finance tests and that's scary because they're on the verge of entering the "real world". Financial literacy has always been important, but it's more important than ever now that financial aid for college can be harder to access, stable jobs are harder to come by, and we're all living longer. Plus, what a lot of us forget is how big of an impact the choices we make in young adulthood can have on our financial futures. A couple mistakes at 20 and buying a home at 30 can seem like a pipe dream.

So teaching kids about money? Is super important. And why not start early by teaching kids about money and making an effort to be a a financial role model? Here are some tips that will help you do just that.

Talk About Money

No kidding! When I was a kid, my mom used to tell me it was very impolite to talk about money - this was after I asked her how much money she made at her job. I know we all want to look like superheroes in front of our kiddos but children do eventually have to live in the adult world so it's helpful for them to know something about it. Hiding your financial flaws is just plain silly since teaching kids about money requires talking about money. You don't have to bust out your tax returns to teach kids about money. Just talk about how you budget and the simple fact that income and expenses is such a big part of life and the connection between work and money. Then use those inevitable moments of in-store begging to go over it all again.

Explain Why You Budget Like You Do

Even better, involve kids in making the family budget! Show them that you have categories for giving, saving, and investing. Tell them why you have a fixed grocery budget. Ask them where they'd add to and take away from different categories if they had the choice. Talk about needs versus wants and how that fits into your budget. As kids get older you can explain how credit works, how it fits into your family finances, how it can be useful if you use it wisely, and why doing just that is so important. And when you don't stick to your budget, let your kids see that, too, as well as how you're adjusting your future budget or compensating for over spending.

Give Them Financial Responsibility

Should you give kids an allowance? I don't have any special insight into that subject though I will say that at our house we don't pay kids for day to day chores. We treat allowance as a tool - I'm hoping that by giving children a small amount of money to use or save, we can guide them toward responsible choices. Like when P. wants to spend her cash on yet another doll in the present when I know she's saving up for a new bike in the future, it's a great conversation starter!

The experts are divided on allowance. Some say it promotes money management skills and a sense of financial responsibility, while others say it makes kids entitled. I just know I want my kids to know how to handle money and to develop good money habits. If your kids are interested in investing their savings, check out books like Wow the Dow! and How to Turn $100 into $1,000,000: Earn! Save! Invest!

Practice Money Math with Your Kids

One key to financial literacy is math, since financial management is all about the numbers. A lot of schools seems to use money in word problems to make them more interesting to young learners, but remember that you can ask older kids to work out problems like how much interest you'll pay on something if you choose a payment plan or how the value of a new car changes over time. Even if you loathe math, make a point of sharing it with your kids so they are excited about numbers from day 1.

Let ChildrenMake Money Mistakes

I made all my money mistakes upon entering young adulthood because I really hadn't handled it much as a kid aside from the occasional pocket money. And that's why I might talk to my daughter about why buying a doll now as opposed to buying a bike later isn't necessarily in her best interests, I'll still let her buy now instead of save if that's what she wants to do with her cash. I'd rather her experience the pain of financial regret at eight years old when the stakes are low than later one when the stakes are so much higher!

Do all this and I bet your kids will look to you for financial guidance and learn to manage their money well.

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