Kids & Money: Early Financial Habits to Build
From the time that your child begins learning to count, they can also begin learning healthy money habits for their future. Learning financial responsibility is just as important in a person’s life as learning to read and write, and starting early will help your child cement those good money habits. Even if you haven’t always had good financial sense, you can use the tips in this article to help your child learn to think about and handle money successfully, ensuring a bright and stress-free financial future.
How to Build a Budget
Building a budget properly is the cornerstone of responsible money management. However, many adults struggle with constructing a budget that works for them. Teaching your child to build a successful budget plan is a great way to lay the foundation for a financially successful future. The biggest key to building a budget is noting that there is no one-size-fits-all solution. A budget is highly personal, and must take into account income, expenses, savings, and investments specific to you.
To get your child thinking about how to build a budget, start sitting down with them at the time that they receive their allowance. Encourage them to write down how much money they have, what kind of expenses they have, and how much they’d like to put into savings. Then, what’s left is the money that they can spend however they’d like. Teaching your child to include savings as part of their overall budget will pay off tenfold in the future, and the younger they start saving, the more money they’ll have later in life to fall back on or invest.
How to Avoid Impulse Buying
Though your child will have spending money left over on their budget letting them impulse buy when the mood strikes will only lead to the construction of poor financial habits. Yes, they should feel free to spend that money, but try encouraging them to put a lot of thought into what they’d like to buy. When the decision to buy is calculated, it’ll teach your child to plan for purchases in the future. This will help build the financial habit and as your child grows, they’ll avoid spending on things they don’t need or want.
How to Use Credit Responsibly
Having credit isn’t a bad thing. In fact, building good credit and knowing how to use credit responsibly are essential parts of growing up, buying a car, purchasing a house, and starting a family. Lines of credit and credit cards are easy to abuse if you have poor financial habits, so teaching your child responsible credit use early in life is very important. If your child wants to buy something with their allowance, but doesn’t have all of the money and doesn’t want to save, you can offer to buy it for them on credit as long as they pay you back over time. Then, sit down with them and form a payment plan that they will be able to stick to. Add those monthly payments into your child’s budget so they can see exactly how it will impact their spendable money in the coming months.
Using credit responsibly is another financial habit that many adults still haven’t grasped, leading to poor credit scores and lengthy bad credit reports. To ensure your child can buy a house or car down the road, teach them to use credit responsibly now.
How to Stay Informed
If you want your child to learn a second or third language, the best time to start their lessons is early in life. Children are more likely and capable of learning another language when they’re young, and they can usually become fluent in less time than an adult. The language of the financial world is no exception. Most people manage money poorly because they don’t have an understanding of how their money works. To counteract this, it’s a good idea to read as much financial news as possible to learn the language and understand financial concepts that affect you and your money.
For your child, this can mean reading children’s books that are focused on money and having financially-centered conversations. As they grow older, they can begin to read financial blogs and newspapers. By the time they’re adults, they’ll have a firm grasp of financial language and understand how budgets, savings, and investments work.
How to Save Proactively
Another financial habit that many adults struggle with is saving money proactively. If you’re in an unexpected emergency situation, lose your job, or need to travel last minute, you may be out of luck if you don’t have any savings. Your options include taking out an installment loan or asking friends and family for financial help.
If you teach your child to save money early, they’ll always have savings to fall back on if something goes wrong. While you’re building a budget with your child, encourage them to foresee situations that could leave them moneyless in the future. Of course, you’ll be there to take care of them, but it’ll begin building the good financial habit of saving money for the day when they become financially independent. Plus, starting savings early is a great way to start preparing for retirement.
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