Children aren’t born with a natural ability to manage their money. Financial skills are taught, and there are generally no better people to learn them from than those entrusted with the important job of raising them.
However, setting your children up for financial success can be a daunting prospect, especially when they look to you to lead the way and help them make wise monetary decisions in the future. While you might have made many financial mistakes throughout your lifetime, you might stand an excellent chance of setting your children up for future financial success in some of the following innovative ways:
When your children reach an age when they start showing an interest in making money, you have the opportunity to teach them about the investing world and the many different low-risk and high-risk investment options.
When they learn about the benefits of low-risk investment options like share certificates, corporate bonds, and mutual funds compared to more high-risk opportunities like crypto-assets and land banking, they can make well-informed decisions later in life.
Not all children will grow up to become investing adults, but knowing the different lucrative options might help them avoid making costly mistakes that cause significant financial hardship and loss.
Some parents provide their children with weekly allowances so they can buy themselves treats and have a small amount of financial independence. While financial independence is indeed important, allowances don’t necessarily teach children the value of money or financial responsibility if there aren’t any strings attached.
There is nothing wrong with providing your children with a regular allowance, but consider making it contingent on their contribution to the household. The chores you set can depend on their ages and abilities, such as children under six putting away their toys and children over six emptying the dishwasher, taking their clothes to the laundry, and taking out the trash. There can often be a greater sense of satisfaction when children receive money after working hard for it.
When your children start showing signs of financial responsibility, consider helping them open and manage their own bank accounts. A great deal of education can be required to help your children successfully manage their own money, but it can provide an excellent foundation for future financial responsibility.
Teach them the importance of spending less than they put in and reconciling their deposits and withdrawals to their monthly bank statements. At this time, it can also be a great idea to talk to them about budgeting and how to save money to get the things they want.
Most parents know how expensive children can be to raise. Alongside the exorbitant costs of nappies and formula, you must also pay for childcare, secondary education, and, often, tertiary education. The costs can add up, and middle-income parents can easily spend more than $300,000 on raising a child from birth to 17 years old.
The costs also don’t stop once a child officially becomes an adult. They must forge their own path in the world, which can be challenging without a sound financial foundation. Many children become successful without their parents’ help, but if you’re in a position to be able to help your children secure their financial futures, consider doing so.
Create a savings account when your children are young and contribute to it regularly. If you have family members who want to help, see if they would be interested in adding money for special occasions like birthdays. By the time your children are getting ready to head off to college or buy their first home, you might be in a position to give them the headstart they need.
College education can be expensive, especially when not all children are eligible for funding, grants, and scholarships. With this in mind, and knowing your children might like to attend college in the future, starting a college fund can be worthwhile.
Many different college saving plans are available, such as the 529 Plan, which can be used to fund educational expenses from kindergarten to graduate school. When your children don’t have to worry about finding a part-time job to support themselves through college, they can focus more of their attention on studying, obtaining a degree, and becoming a success in their chosen field.
You generally only need to be 18 years old before you become eligible for your own credit card. Many 18-year-olds don’t understand how credit cards work and how dangerous they can be when you make poor financial decisions when using them. When your teen starts showing interest in leading a more financially independent life, begin teaching them about how credit cards work, especially regarding interest rates and their credit scores.
If they know how much more they need to pay above and beyond the original balance, especially when paying outside advertised interest-free windows, they might be more inclined to use their credit cards responsibly. At a minimum, explore the pros and cons of credit cards with your older children. While they can be helpful in emergencies, while traveling, and when trying to build a positive credit score, they can also result in significant debt when not used wisely.
While you don’t need to discuss the intricacies of your family’s financial situation with your children, it can be important not to leave them out of money discussions altogether. When your children don’t learn the value of money, how hard it can be to earn it, and how easy it is to spend it, they may not make wise financial decisions in the future.
Having open money discussions can start at a young age. For example, you might let your children choose staples at the grocery store and show them the different price options based on product sizes, quantities, and brands. Many everyday situations provide the perfect opportunity for honest money discussions.
You might not have always made wise financial decisions in the past, but that doesn’t mean you can’t help your children avoid the same mistakes. Take some of these actions above, and you might improve your children’s chances of making their own smart money management decisions in the future.
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