Most families live on a budget and have to live within it. Parents have to choose how to spend their money, where to invest and where to splurge so that there is enough to make ends meet at the end of the month. Too few parents, though, are passing on these key strategies to their kids. Financial responsibility isn’t a skill that’s taught in school and learning by hard knocks when your child is out on their own can be a disaster without skills and knowledge about earning, debt and credit.
So, how much should parents share with their kids? Telling kids about current hardships will give them anxiety and stress over which they have no control, so keep your financial challenges to yourself. Where kids can learn, though, is through discussion and life lessons:
Teach them to earn money. Whether your kids have a paper route, babysit for the neighbours or do chores around the house to earn an allowance, make them work for it. Handing cash over every time they want to go to a movie or buy a new pair of jeans does nothing to teach them financial responsibility. Earning their money, and having to choose how to spend it, teaches them valuable life lessons about smart spending. It also teaches them how much things actually cost.
Encourage them to save up for big ticket items. If your child wants a new gaming system or the latest wireless headphones, teach them that they need to save for more expensive items by eliminating spending somewhere else in their budget. You can help them reach their goals faster by “hiring” them for large household jobs that aren’t usually a part of their daily chores, like cleaning the garage or organizing the basement. Also teach them to keep an eye out for sales, so the money they have earned goes farther.
Help them to invest. Investing even a small amount of money can be a great learning experience for kids. They get to see how the market works and watch how their money performs. Suggest just a few dollars for younger kids, and as much as 50% for working teenagers that don’t need the expendable cash to pay bills. Understanding long term money saving strategies can set your kids up for life.
Make sure your students have skin in the game. Asking your kids to contribute to their post-secondary education is not only a smart financial tool for your own budget, but it helps them to invest mentally as well as financially in their schooling. Knowing they had to work hard to get there makes them more likely to succeed in the end.
Talk to your kids about your own budgeting strategies. You don’t have to get into exact numbers, but you should explain to your kids that you have to live within your means. Teach them that you have to set aside money from each pay cheque to pay the bills, mortgage or rent, credit cards and groceries. Next talk about savings accounts that you may use for emergency funds, educational savings, and how the budget for vacations and frivolous expenditures only comes after all of the important things are taken care of.
Talking to your kids about financial responsibility can help point them on the path to financial security.