Parents are constantly working hard to make sure their child has everything they need before they move out or go off to college on their own. Countless hours are spent on studying and homework, playing sports, and learning lifelong lessons. While managing money is one of the most important aspects of our adult lives, many parents neglect teaching their children how to handle finances.
Learning financial responsibility at a young age can help children make wise decisions as a young adult, which in turn sets them up for a life of success. This can lead to a head start when planning for retirement and saving for large purchases like a home.
Darcy Bergen, founder of Bergen Financial Group, shares 6 tips for teaching children financial responsibility.
- Take your child grocery shopping. This is an opportunity to teach your kids how to balance a budget while shopping for your family’s weekly needs. Darcy Bergen suggests increasing their budget in increments to provide more opportunity for practice as they get older.
- Next, Darcy Bergen suggests giving them real money to manage. Start with small activities such as providing $5 to pick out a toy or snack. This not only helps them learn how to count change, but they will be more confident in the future. This will set them up to have a better idea of how far a dollar gets you.
- Teach the Save, Spend, Give model. For older kids, it is appropriate to do this in bank accounts and with budgets. With children, use three small jars with labels so the child can make decisions on how to allocate their money. Darcy Bergen recommends making them save for a goal that is far away to teach patience.
- Practice what you preach. If you lecture the importance of frugality and saving, but make purchases that are unnecessary and have very little savings, your children will more than likely not abide by what you preach. Children seek a role model and by showing them good financial habits, they will be more likely to pick up on those.
- Pay your children an appropriate rate for extra chores they do around the house. If your child offers to mow the lawn, pay them the amount that is fair for the job done. If the job was done poorly, teach them that unless the job is done correctly, they will not get paid. This increases the child’s exposure to how services should be performed in real life.
- For older kids, teach the importance of avoiding high interest debt. The average American has around $7,000 in credit card debt. The high interest debt takes a lot longer to get rid of and as a young adult, it is better to avoid it all together. Young adults do need to build credit, but they don’t need a high credit limit. Parents should help their children seek credit limits no higher than $500 and limit the number of cards to just one. Teaching good credit card practices is crucial for the young adult in this day and age.