This is a post by David Bakke, father of a young son, and contributor for Money Crashers Personal Finance, a blog focused on sharing tips on money management, investing, retirement, and more.
My parents did their best to make sure that I knew the value of a dollar and how to spend my money wisely. Although I largely ignored their advice in my youth, later in life I adopted nearly every piece of financial advice they ever gave me. My parents provided me with a foundation for personal finances that I still use today.
There are a number of ways that you can instill a good set of financial values in your children:
1. Lead by Example
Lead by example when you teach your children about finances. Your kids may not listen to your advice if you have extensive personal debt and live paycheck-to-paycheck. In addition, your children will learn your bad money habits and may even emulate them as they become adults. I have known many people who struggle financially whose parents were faced with debts, bankruptcies, and foreclosure.
Actively working to improve your budgeting and spending skills can help your children with their finances. Use your experiences as life lessons: Explain the mistakes that you made in the past and how you plan to correct your financial problems. Furthermore, involve your children in your home budgeting and personal finances.
2. Get Involved
When I received my first credit card, I called my parents. They offered me some cursory advice on how to handle the card, but I didn’t listen. They didn’t ask me about my financial situation again until after I graduated from college, and by then I had thousands of dollars of credit card debt.
If you want to help your kids with their finances, get involved. Show your kids a credit card statement long before they can apply for one, highlighting the terms, conditions, and the interest rates and fees for using the card. Encourage your children to talk to you about finding the best cash back credit cards and how to use them responsibly before they apply.
When kids receive their first credit card statement, help explain it to them to reinforce previous credit card lessons. And gently inquire about their finances from time to time – you don’t want to invade their privacy, but you also don’t want their finances to go unchecked.
3. Be Positive, Don’t Criticize
If your children begin to accumulate debt, make late payments on credit cards, or apply for high interest credit cards, don’t criticize. Instead, explain the potential results of their actions in a positive way.
I tuned out my parents when they criticized my behavior. Don’t make this mistake with your children. Offer solutions rather than chiding them for their mistakes. You may have made some of the same mistakes, so you can offer them relevant, helpful advice.
4. Plan for the Future
Help your children with their finances by teaching them how to save for the future. Your child will likely want a car when he or she turns 17, so begin talking about buying a car when your child turns 14. How will your child pay for a car, car insurance, and maintenance for the vehicle? Share your auto insurance bills with your kids, and explain that insurance prices vary based on the type of car purchased.
When your child turns 16, begin to seriously discuss college and related expenses. How will tuition, textbooks, and other school-related expenses be paid for? Perhaps your child needs a college savings plan or a part-time job.
Reinforce the idea that financial success means planning for the future, in addition to paying bills. If your kids have jobs, make sure they contribute to a 401k plan. If they already contribute to a retirement plan, suggest other savings options. A Roth or a traditional IRA can help kids save for the future.
5. Teach the Difference Between Wants and Needs
Distinguishing between needs and wants can help your children achieve financial success. If your children can’t make this distinction, give them real-life examples.
Instead of buying things they want, like concert tickets or new clothes, encourage them to save their money for things they need, like a car. If you have viable public transportation in your area, encourage them to forgo a car and to save for college instead.
When it comes to financing new purchases, teach them the golden rule of credit cards: If you can’t afford to pay something off by the end of the month, then you can’t afford to buy the item.
Special Advice for Parents of Recent College Graduates
Recent college graduates will experience a number of important changes in a short amount of time. They will enter the workforce and may begin receiving their first full-time paychecks.
Make sure your recent graduates know how to use the new source of income to budget and save money. They will likely also graduate with a substantial amount of debt. Make sure they understand the importance of paying off this debt in a timely fashion without missing scheduled payments.
Parenting strategies should include helping kids with their finances. When you get involved and become a financial mentor, you help your children learn lessons about money they won’t soon forget. You can have peace of mind knowing that your children can manage their finances on their own, now and in the years to come.
How else do you help your kids with their finances? What additional tips would you offer?
This was a post by David Bakke, father of a young son, and contributor for Money Crashers Personal Finance, a blog focused on sharing tips on money management, investing, retirement, and more.