Financial skills are probably one of the most important skills your kids will need as they head out into the big world! Their knowledge and skill around investing, budgeting, savings and debt can mean the difference between a prosperous, happy life and living from paycheck to paycheck – or even worse homelessness and poverty!
Unfortunately, many parents falsely believe that their children are being taught everything they need to know about how to save money and budget at school. There are however a number of very scary stats which don’t back this belief. Here are a couple of them:
One-third of American adults have zero retirement savings. As our life expectancies become longer it isn’t unreasonable to expect to live for an average of 30 years after retiring. This would mean that you would need at least $1 million to retire reasonably well. Many children and young adults are seldom taught the importance of time and compound interest so a lack of savings and investment can become a big problem as they get older.
Almost half of Americans don’t have an emergency fund or sufficient cash savings available to cover a $500 emergency.
Millennials are carrying huge amounts of debt that they need to pay off meaning that they are saving less than they could. According to a recent CNBC article the average Millennial is carrying the following in debt:
Too many people spend money they haven’t earned, to buy things they don’t want, to impress people that they don’t like.WILL ROGERS
- Average credit card debt: $4,322
- Average student loan debt: $38,877
- Average auto loan debt: $19,011
- Average personal loan debt: $12,306
Teaching your kids about debt and the importance of never borrowing more than what you can afford could help your children to avoid this type of debt.
Credit Card Debt
While student loans and home mortgages could be considered “good” debt, credit card debt is definitely never good. And credit card debt, combined with high-interest rates, can be disastrous to your kids as they get older. Almost 40% of American households have credit card debt and as can be seen in the figures above, millennials hold an average of about $4,322 in debt.
While these figures can seem completely overwhelming, by teaching your children about money and the importance of saving from a young age, you will be paving the way to a bright and secure future for them. Good habits start early so don’t delay, get started today!
Here are 6 fun and easy ways to teach your kids to save money and budget
Most children are interested in money and learn by example so if they see you saving they will fall into the habit of doing so easily. Also sharing why and how your family saves money is an important step in their learning.
Wants and Needs
Explain the difference between wants and needs and play fun games exploring these concepts. For example, when going to the grocery store, let your kids decide which items are a want and which items are a need. Give points for each correct answer and then reward them with a want item.
Give them a safe place to stash their cash
Piggy banks and savings jars are great, especially for younger kids. And if you create a savings jar or piggy bank for yourself they will happily copy your savings habits. As they get older you can take them to the bank and open a savings account for them.
Allow them to earn their own money
Assign a value to the chores you would like your kids to do and let them earn cold, hard cash for each task them complete! By doing this they will learn the value of money and they will understand the work involved in getting that money which will hopefully make them far more likely to save their money.
Budgeting for specific items
If your child wants the latest and greatest gadget or gizmo you can incentivize them to save by offering them rewards for reaching their goal. For example, if they save x amount you will add x amount to allow them to buy the item sooner. You could also offer incentives for reaching certain goals. For example, when they reach 25% of their savings goal you will match their savings.
Long term saving
Teach your children the value of putting away a certain amount every month. For example, regardless of what they are saving for or wanting to spend their money on, they should always put aside 10% or 20% every month. Ideally, this should become a habit from early on. You could also incentivize these savings by offering rewards when that money is left untouched. This is a great way to teach them about interest and more importantly compounding interest!
Become your child’s creditor
If your child is desperate for an item you can offer to lend them the money so that they can buy the item sooner. However, they would need to understand how they would have to pay the money back and if they would need to pay interest to you for the money they borrowed. This is a great way to teach them how interest works from the viewpoint of someone who earns money or interest on the money they save versus someone who loses money or interest on the money they borrow.
When you teach your kids how to save money and budget you help them to develop a sense of responsibility, boundaries and limits. By showing them the value of money and the work involved in getting it you can avoid the “money grows on trees” attitude so common with a lot of kids and young adults. And teaching them doesn’t have to be difficult, just remember to be patient and consistent. And let mistakes happen. Mistakes are often the best teachers on the road to financial independence and security!