As a parent, you obviously want to set up your child for success in the future. You want them to be financially independent later in life. The National Endowment for Financial Education states that parents have the biggest influence on the financial habits of their children.
So you’re not only required to lead by example but help your kids develop the best money habits too.
In this guide, we will give you practical tips to prepare your children for true financial success on their later years.
Let’s get started:
- Show them the importance of saving
The operative word here is “show” as opposed to telling them to learn the importance of saving. Saving can be a difficult concept for a child to grasp early in life. There’s never enough money to buy everything they dream of much less save. Getting a little cash creates an excitement to spend.
Teach them the importance of saving by practically showing them the benefits you get from saving money. Let them know the family vacation you plan to take them is a result of a year’s worth of diligent saving.
- Teach them to develop responsible work habits
Set your child for a financially successful future by instilling a sense of responsibility and good work habits. This will help them prepare for productive careers.
Encourage them to take part-time jobs as teenagers and when possible don’t bail them out every time they run into expensive mistakes. Let them work their way out and learn from their mistakes. Don’t let them go to jail though.
- Learn to say No!
This is one of the biggest problems with parents today. They just can’t say no to their precious kids. They’ll even borrow just to make sure the kids have everything they ask for. Failing to be firm and say no every time your child asks for something can be counterproductive for the child’s future.
Children need to understand that in life you can’t have everything you wish for.
Don’t spoil your children no matter how much you love them.
Let them learn to prioritize needs based on the available money and time. Remember that scarcity instills financial discipline in the child’s spending habits.
- Make them find jobs in their teenage years
A teenager who gets a job at around 16 or 17 years learns how to become financially responsible at an early age.
Push your late-teen child to get a part-time job which will give them extra income to spend and save. You may still give your child an allowance but he or she will be more cautious about spending money earned than money provided by the parents.
Remember that earning an income is a positive social factor that promotes responsible working habits.
- Set a good example
Your children may not listen or do everything you tell them but remember that they are always watching how you do everything.
The lessons they learn simply by watching you will have a major impact in their lives. So practice what you preach and lead by example, especially in financial matters.
You can’t be a spendthrift mother and expect your daughter to turn out differently. If you are in emergency and have no other sourse of quick cash, show your kids how to get over fast with online loans. They can be a real life-saver, but the key is not to use them too often.
- Teach them how to divide their income
Income can generally be divided into three parts, spending money, savings, and gift money. Let your child learn early in life how to split all the income they get into these three categories. Spending is obviously what they spend on things they need, savings are what they set aside for a rainy day or special purchase, and gifts money is what they give away to others such as birthday presents and church offerings.
Let them keep their money in three jars; one for saving, one for giving, and another one for their personal expenses. At a young age, they can give away 10%, spend 40%, and save 50%. The percentages may change over time but the division teaches them financial responsibility.
- Let them earn their allowances
Children should be taught early in life that allowances should not be money they are entitled to simply for being part of the family. Allowances shouldn’t be used to promote a sense of entitlement but should instead be earned. An attitude of entitlement is detrimental to the development of creativity, initiative, and the value of productive labor. Pay them an allowance based on completion of basic household chores and tasks if you want them to be financially independent later in life.
- Set a points-based earning system for weekly tasks
Teach your children how the real world works at an early stage in life. You’ll prepare them for the complexities of the labor market when they join the labor force. One way of doing this is by setting up a time card for each child where you’ll record whether or not they have successfully completed their weekly tasks. They’ll earn points for completion of each daily task.
The points will then translate into the amount of money each child earns at the end of the week. Pay them in cash as young teens and open a checking account for them in their late-teen years.
So, there you go. These 8 tips will help you prepare your children for a successful financial future.
Do you have more tips to share with us? Please post them in the comments below.