Top Tips for Teaching Your Kids Financial Literacy
You can teach them how to automate their payments and show them how important it is in your own example. This will ensure that they never miss a payment.
Your child’s financial literacy is your own responsibility. Of course, you can count on them to learn this skill on their own once they are old enough. However, taking the time to do it now is something they will be forever grateful for. Traditional education doesn’t care much about whether your child will have financial literacy or not. In other words, it’s all up to you. With that in mind and without further ado, here are the top seven tips to help you teach your kids financial literacy.
Make them win the reward
Whenever your kids want something, make sure they don’t get it for free. The task they perform should not be difficult to accomplish. It shouldn’t take too much of their time. In fact, the ideal would be for the task to be proportional to the reward. For example, if they want a new gaming computer, win them with their final scores. If they want something minor, a week of chores should do the trick. This will teach them two important lessons:
- You won’t get anything for free.
- The value of your work is proportional to your reward.
This lesson alone can help put them on the right track.
Help them develop intrinsic motivation
Children often learn through popular culture, but they only do so if they find it interesting or relevant. This is why they are more likely to immerse themselves in a film than in a documentary. This is also one of the reasons why parents prefer to use methods like children’s theater to ensure that their children receive a powerful message. Depending on the play, the skill of the actors, and your child’s personal interests, the message can be received quite strongly. On the other hand, it is also important that you choose the right game.
Teach them the value of investing
Work rarely generates wealth. Wealth generates wealth, and the most effective way to do that is to invest. So try to teach your kids why and how they should do it. First, make sure you open their custody brokerage account before they turn 18 (due to their legal age, only you can do this). Second, be sure to explain to them how it works. Keep in mind that if you are not a professional investor yourself, some of your knowledge on this subject may be limited or even out of date. Instead, enroll them in a few classes.
Help them understand the credit score
Their credit score will help them get a good loan whenever they need it. Even if they are not in financial difficulty, loans are the best way to finance certain purchases. The credit score factors are:
- Refund history
- Amounts due
- Types of loans
- Length of credit history
- New credit
Right off the bat, it becomes more than obvious that as a parent you can affect a few with your guidance. First, you can teach them how to automate their payments and show them how important it is in your own example. This will ensure that they never miss a payment. Second, the sooner you help them open their credit card, the better. Why is that? Well, because it will extend their credit history by giving them an early start compared to the rest of their generation.
Teach them unusual scenarios
Try to explain to them that financial problems cannot always be solved with financial means. For example, when you are facing debt issues, you may need to find the right debt settlement lawyer. When others owe you money, you may need to work with a debt collection agency. Also, when faced with a scenario where they are faced with a lack of cash, teach them how they can cash their invoices instantly by selling them to a factoring company.
These are the little things that most people think they will never use, yet they come up more often than you might think. In order to make sure that they never become a problem, you need to teach your kids about them in advance.
One of the first arguments people make about the education system is that while spending countless hours in algebra, they never bother to teach students how to file their own taxes. As a parent, you have the opportunity to get it right, but you can’t just start there. First, you need to explain to them what taxes are, why they have to pay taxes, and let them know what happens if they skip this step.
In addition, if you have the time, you should break down some aspects of taxation to make the subject easier to assimilate. While they are particularly young (pre-high school), they just need to know what taxes are. As they grow older and their understanding of the topic expands (they know more about finances), you need to teach them more about details like returns, deductions, etc.
Budgeting makes the difference
Your income is extremely important to your financial well-being, but if you can’t manage how much you spend, it can never be important enough. That’s why you need to teach your kids how to budget, how to save, and how to prioritize. The easiest and by far the most efficient way for you to do this is to give them a small amount of their own money. An allowance will give your children a simulation of what it is like to have a regular income. So even if you think they’re not spending it wisely, let them be. Later you can turn it into a lesson. Learning by example (and your own mistakes) is incredibly effective.
Ultimately, financial literacy can also depend on your country or state, which is why it is important that you are responsible for their financial education. The resources they find online can be valuable, but if they don’t criticize the source, they can also be misleading, invalid, or out of date. In other words, self-education is great but deeply flawed as a concept. If you want something done right, do it yourself.