Far too many kids graduate from high school not knowing the basics of financial literacy. They don't know how to balance a checkbook, how to make a budget, or how to check their credit score. It often comes down to parents to make sure that when your kids leave home or head off to college, they have the basics down.
So, other than the basics, what should you cover with your children to help set them up to be responsible money managers in the future?
1. Show Them How to Plan a Budget
Starting fairly young, you should show your kids your own budget. Go over it with them and explain what each item means and why it's important. Help them understand family expenses and how much you have left over and how you decided on that budget to give them idea of how to build their own.
This gives them a good example to work from, which you can then extrapolate to what their college budget should look like.
2. Teach Them to Write Down their Needs Versus Wants
One basic tenet of budgeting is to write down your needs and wants. Encourage your kids to do this and then to sort their wants by a priority order.
This gives them basic saving goals, and also helps them learn to avoid frivolous spending. They must learn the difference between spending money on absolute necessities and when they can afford to spend on luxuries.
3. Teach Them How Credit Actually Works
Before you let your kid have even a debit card, teach them how credit cards, digital money, and borrowing actually work. Too many adults end up seeing their credit card limit as money they have, with potentially disastrous results.
Teenagers should be taught that when they get their first credit card, they should keep a low balance on it for a bit to prove they can handle debt, then move to paying off the balance every month once they have a good credit score. They also need to learn not to be tempted by reward programs, as well as why they should not use credit cards for emergency spending unless they have no other choice, due to the high interest rate.
Meanwhile, let them have a reloadable debit card for those situations where plastic is needed.
4. Make Them Responsible for Part of their Lifestyle
Have some things that a teenager can't have until they pay for them themselves. They either need to get a job, save money from their allowance, or both. Some families make their car a long-term saving goal from a fairly young age, however if mobility is more essential where you live you may not be able to do that.
It can be as simple as they have to pay for all of their own video games.
5. Teach Them the Fundamentals of a Tax Return
A kid might hear $10 an hour, think they are getting all of that money, and plan to spend it all before realizing how much is taken away by taxes. Before your teen gets their first part-time job, show them the fundamentals of a paycheck and explain what is taken out and why (taxes, benefits, etc.).
In the same vein, your children will need to learn how to complete their tax forms and ultimately file. Explain to them exactly why they’re getting the amount they are, where the money comes from, how to obtain the funds, and how to wisely manage it once it’s in their hands.
For any questions or help with managing money for you and your family, contact the financial experts at Caldwell Trust today to speak with an advisor.