Having good financial skills is an integral part of navigating life, and it is up to parents to teach their children critical financial lessons. Whether you are a master with your finances or like the millions of people that don’t know much about money, it is essential that the next generation is taught how to avoid the previous financial mistakes and learn to live financially fit lives. Here are five valuable lessons to teach your kids about money.
You May Have to Wait To Purchase Things You Want
This isn’t an easy concept for anyone to learn. However, the ability to postpone gratification can also be a good predictor as to how successful a child will be when they grow up. Learning the importance of delayed gratification will end up serving your children well for the rest of their lives, advises the experts at Tennessee State Bank. Between the ages of three and five, it’s important for kids to learn that if they want something, then they will have to save their money.
You Must Make Choices About How to Spend Your Money
When children reach the age of six, it is essential that you explain to them that money isn’t finite and the importance of making wise choices, because once you buy something with the money you have, you don’t have any more to spend. This is the perfect age to introduce the concept of saving, spending, and sharing jars. This can help to educate your children about the need for budgeting and the correct way of doing it, according to the site Debt Discipline.
Teach Them About Compound Interest
Between the ages of 11 and 13, you can start to shift the idea of saving their money for short-term goals, to more long-term goals. This is the best time to introduce the concept of compound interest. Describe compound interest to your children using specific numbers because this is a more effective way than describing it in the abstract. For instance, explain to them that if they set aside $100 every year starting at 14, by the time they reach 65, they’ll have $23,000.
Consider the Cost of College
As your children begin to contemplate colleges, it is crucial for them to consider how much each school will cost when they are comparing colleges. You can have them use a “net price calculator” found on many college websites to see how much each school will cost when they include other expenses with their tuition. Make sure they understand how much more college grads can earn compared to people without college degrees if they become discouraged by the results.
Only Use Credit Cards and Short Term Loans if They Can Pay off the Balance
While they may feel that their reasons for a short-term loan or credit card balance are justified, it is vital for them to understand how easy it is to slide into mounting debt that could place an unneeded burden on your child. Plus, they need to know that it could affect their credit history, which could make it more difficult for them to buy a house or a car.
Raising financially responsible children is an integral part of life today. Help start their time as adults off right by teaching them these five important lessons about money.