Insights on Financial Strategies
Teaching Your Kids A Lesson
Financial skills are an important part of life.
But schools dont teach them. So it’s up to parents to educate their children how to properly save money, spend wisely, stick to a budget and turn into financially savvy adults.
So, what are the best financial lessons to teach your kids?
Lesson 1: Learn how to budget
Money is limited, and it will run out if you spend it faster than you earn it. Budgeting is an important concept that needs to be taught so children understand the value of having money in reserve. If your child has $30, explain to them they can spend some of it on an inexpensive item and have some left over, they can spend all of it and have nothing left, or they can continue to save and buy something more worthwhile later on.
Lesson 2: Delay gratification
Everyone wants it and they want it now. And with easy access to loans and credit cards, falling into the debt trap is easier than ever. Teach your child that if they really want something, they should save for it. Help them set goals. A graph will make it better for them to visualise.
For older kids, show them how making regular deposits into a bank account quickly adds up, so they can reach their goals with patience.
Lesson 3: Income matters
Money from a job will likely be your child’s first taste of an income. It doesn’t matter what the job is; babysitting, car washing or chores around the house. Any kind of task where the child receives money as a reward for effort will teach them the connection between work and income as compensation.
Lesson 4: Let them make their own decisions
Like most lessons with children, telling them what to do and not to do is a battle. Money is no different. Kids learn from their mistakes, so let them make some. Allow them to make some impulse buys so they realise the consequences of their decisions. If they must have a new T-shirt, let them buy it, but point out that the money they spend comes out of their savings, so reaching their long-term goal will now take longer.
Lesson 5: Long-term saving can grow your money faster
As your kids get older, you can start to shift away from the idea of saving money for a short-term goal, and introduce them to the idea of compound interest. Explaining how they can earn interest on their savings can be an eye-opener for a teenager. And especially as a teenager. Its the age when kids want the latest and the coolest things right now, because everyone else has them. Helping them learn to give up something small today for a greater reward tomorrow is a great life skill to have.
Setting your kids up to manage their own finances as adults is vital. It’s so important for them to be financially educated and independent so they can cope with the opportunities, challenges and uncertainties that life often throws at us.
If you need some help getting your own financial goals in place, get in touch with the Clifton team.