Teaching your kids about money and financial basics can be an awkward topic for some parents. The financial facts of life are not an easy discussion to have, especially with younger children. But if you don’t’ teach your kids the financial basics during their formative years, you might come to regret it later, especially if kids have only limited financial resources later in life and end up come at home and living as adults in your basement.
Kids should learn that it is never too early to start learning about money and building wealth. In fact, their youth gives them an enormous advantage because the earlier one starts, the better due to the magic of compounding.
Here are a few practical money skills you can teach your kids, which will last them a lifetime. Consider it a parental gift that only a parent can give.
- Open a checking or saving account in your child’s name.
One of the most important lessons of the checking or savings account is learning to balance income and expenses. This is a perfect way for your child to demonstrate living within their means, being responsible for bills, and setting financial goals and priorities. Encourage your child to become knowledgeable and mature in their own financial decision making. This is also a great time to show the wonders of online banking – a sign of the times for Generation-X and Y’ers. Don’t forget to explain that just because there are still checks in their checkbook, there isn’t necessarily money in the bank account.
- Teach your teens the cold hard facts about buying that first car (and subsequent cars).
Most would agree that next to buying a home, a car is one of the most expensive items that anyone buys, regardless of age. Unlike homes and real estate that typically increase in value, cars lose value over time. Impress upon your child this fact – no matter how impressive the car looks, feels and drives, it will be worth far less when he/she goes to sell it than when they purchased the car. Also, don’t forget to walk them through all the other expenses involved with owning a vehicle such as gas, insurance, and maintenance costs.
- Buy stock in a company your child knows and loves.
Buying a few shares in a well-known company can open the door to an exciting new experience for your kids. Stock ownership can be one of the best ways to build net worth over the long haul. Hand over the reins and let your child handle the details of finding companies and making the stock purchase much like they purchase video games, toys, movies, clothing, and other items. If the concept takes hold, demonstrate how to dig up and interpret information found on web sites, in newspapers and in financial statements. Investigating a company together can be like a treasure hunt or mystery game. Review some key concepts like profits, dividends, and debt – remember to keep it simple and have fun.
