Sometimes the smallest financial mistakes can take years to correct, so arming your children with these personal finance tips can be extremely beneficial when they’re first starting out.
One of the best gifts you can give to your children is the knowledge of how to best handle their finances. Many children move out of their parent’s homes being completely clueless about the right steps they should take, and what financial pitfalls they should avoid.
Personal Finance Tips Your Kids Need to Know
1. Credit Cards: The Pros and Cons
Establishing credit is obviously a goal your child should aim for, but they need to be aware of how quickly credit card debt can avalanche. It is extremely important that your child fully understands the responsibility of having credit at their disposal, and how it impacts their credit history and score.
Take the time to teach your child about how high balances can often create a debt trap that they may never have a chance to escape if they aren’t careful.
2. Explain How to Budget
You should drill into your child’s head the importance of spending less than you actually earn. This is the single most important skill that will help your child stay ahead of their finances, and will help deter any financial issues that might arise.
Your child should always make sure they have enough money for their basic needs, such as the cost of living, food and utilities – but also let them know it’s ok to set aside some “fun money”. This will help give them an incentive for sticking to their budget!
3. The Importance of Net Worth
It is crucial to explain to your child the importance of acquiring assets that increase in value over time, instead of decreasing. Examples including choosing to buy a house as soon as they’re able instead of renting.
Buying a house means they could have the possibility of selling the house at a future date, whereas an apartment is simply a money drain. This also means avoiding debt, saving money and learning how to invest.
4. Basic Car Maintenance
This might seem silly, but knowing basic car maintenance can help your child save a great deal of money over their lifetime, and can also help them avoid being taken advantage of at a car repair shop. It will also help them know what to do if they were ever stranded alongside a road.
Help your child learn how to change the tires and replace the air in them. Teach them how to swap out a headlight bulb, what each warning light means and help them get into the habit of changing the oil as necessary. If you don’t already know these things yourself, now is a great time to learn!
5. The Value of Items
Your child might be tempted to buy cheaper items since they could accumulate them more quickly – but it is always a better idea to slowly accumulate items that hold more value, and have a greater quality. This means taking the time to research what they’d wish to purchase and finding the best bang for their buck, and making sure that the item will last regardless of what price tag it comes with.
Over time your child can save a considerable amount of money even if they feel like they’re paying more upfront. This is because the item will less likely need to be replaced so quickly, and might be less likely to require service.
6. Explain Interest Rates and Bank Fees
When your child gets their own bank account for the first time, they might not understand that not every bank is the same. Some banks charge higher fees for various services, along with higher finance rates and APR’s. These items can add up if your child isn’t careful!
Take the time to explain to your child how bank interest rates work and the pros and cons of taking advantage of different services – such as placing money in a certificate of deposit. Also, help them understand how their own actions can affect what the banks will charge them in return.
7. Get a Retirement Plan in Place
You and your child both might think they’re too young to even worry about this, but getting a headstart can make such a huge difference when they’re older, and can potentially feel like they’re spending less over time to help achieve their retirement goals. And face it, a little extra isn’t going to hurt anything.
Help your child open a Roth IRA and teach them how the money can accrue over time if they are careful about both saving and investing. Even better, teach them how finding an employer that offers a 401(k) plan with a company match n contributions can help them even more in the long run.
Just remember that every little bit adds up, and there is nothing more satisfying than achieving your personal goals. Especially if those goals will help both you and your child have a little peace of mind.