As a parent, you always want what’s best for your child. You want them to grow up to be people with good values, treat others well, and know how to care for themselves. While many parents focus on manners, hygiene, school education, and health, there is one area some forget about: financial knowledge.
Parents can play a huge role in how children view money later on. In fact, financial literacy advocate and author Mac Gardner says that “the number-one behavior children learn from their parents is spending habits.” If you want your children to live a financially independent, debt-free life, you must start educating them early on proper personal finance skills.
Luckily, it’s never too late to start. If you start giving your children the tools for financial success now, you can feel confident that they’ll instill those lessons and carry them throughout their lives.
6 Tips for Teaching Your Kids About Debt
Here are five ways you can teach your children about debt and set them on the right path to financial independence:
1. Teach the Value of Money Early On
Start showing your child the true value of money as soon as possible. It can be hard to say no to that adorable face when they ask for a toy or a treat, but you must show them they cannot get everything they ask for.
Start by teaching your kids that if they want an expensive item, they have to earn it. If you give them an allowance, you can tell them to set money aside until they have enough. Or, if you’re a non-allowance family, you could let them know how many chores they would have to do over how many weeks to earn the purchase.
The important lesson here is to show your child that they must work hard and be patient if they want to earn a big purchase.
2. Differentiate Between Wants and Needs
Another benefit of learning to say no to some of your children’s requests is that you can start teaching them the difference between a want and a need. You can explain to your kid that while they may want the latest Disney toy, it’s not a need right now and, therefore, won’t be indulged.
But this goes beyond your response to your children’s wants. You must also learn to model the right spending behavior in front of them. Your child will have financial self-control later in life if they witness you practicing it, too. Make sure you have transparent conversations and show your child that sometimes you have to sacrifice wants too because the priority is always what the family needs.
3. Educate Them on Credit and Debt
Far too many young adults go out into the world not understanding credit and the implications of debt. Many people sign up for their first credit card and immediately max out their cards because they can’t control themselves. Or, young adults sign up for student loans without paying attention to the interest rates they’ll carry for at least a decade post-graduation.
A Business Insider Intelligence survey found that more than one in four millennials didn’t completely understand the terms and policies of their student loans when they signed up for them. Most notably, students reported being surprised and confused when they realized they’d sometimes owe double what they took out in loans due to compound interest.
As a parent, you need to sit your child down and walk them through the implications of credit and debt on a person’s financial situation. This especially needs to be done early on before the child goes out into the world and has the opportunity to dig themselves into debt.
4. Encourage Them to Take On Financial Responsibility Early On
Starting work from an early age is an excellent financial lesson because it shows how hard one has to work to earn money. Even if you can fully financially provide for your teenager, consider encouraging them to get a part-time or summer job while they’re in high school. Ask them to use the money they earn towards a meaningful goal, like saving for their first car or buying their back-to-school clothes.
5. Teach Them to Save From Every Paycheck
When your child starts working, teach them to set aside 15-20% of every paycheck into savings. Instilling this habit from the very beginning will increase the chances they’ll continue it for the rest of their lives. This type of “savings first” mentality will help set them up for success in saving for college, a home, and retirement.
6. Help Them Start Investing Early
Thanks to compound interest, starting to invest at an early age is one of the best things you can do to make your money work for you. Unfortunately, many people start investing much later in life simply because they didn’t think about saving or they were too intimidated to start investing.
You can start teaching your children at an early age everything about investing, including how to do it, the potential returns they can see, and how you don’t need thousands to get started.
When your child is old enough, help them set up their first investing account. As they see their portfolio grow, they’ll quickly learn the value of prioritizing investing.
A Parent’s Duty: Educate and Lead By Example
Every parent knows they can only guide their child so much before they have to let go. Ultimately, you won’t be able to control whether your child becomes financially independent or succumbs to the temptation of debt.
But if you take the time to educate them on personal finance and lead by example of living within your means, your precious little one will likely grow up to be the financially responsible adult you always hoped to raise.
You might also be interested in: How To Protect Your Family Against Inflation
