While some economics courses are offered in school, they’re not a typical part of most school curriculums. Without direction from parents, children can become adults with little understanding of the financial know-how that has the ability to shape their entire lives. Here are a few ways you can teach your children the basics of managing their finances.
Credit Lesson
Credit is an essential part of every adult’s experience. In fact, our credit report and history can hinder or help us throughout life. To teach your children about credit, start by explaining its benefits to them, as well as how bad credit could impact their day-to-day life. In particular, focus on the difficulties they might have in finding an apartment or qualifying for a loan to buy a car. Although younger children may not understand, teenagers should be given a basic rundown of minimum payments, interest, and how to manage debt responsibly.
Car Insurance
When a teenager wants to get behind the wheel, they should know there’s more to it than just learning to drive. For anyone who drives, having auto insurance is a crucial part of your financial makeup, and a lack of insurance can lead to significant financial hardship if they are ever in an accident and are underinsured or uninsured. When shopping around for insurance, explain to your teen they are likely to face higher premiums due to their lack of experience. Your child’s age, gender and the type of car they drive are used by insurance companies to assess and determine a premium, which averages around $160 annually for girls and closer to $200 for boys. By adding your teen driver to your auto policy, you can get a better rate as long as they keep a clean driving record, which will serve them well later when they have their own policy.
Mortgage Information
It is still very much part of the American dream to own a property. Yet, few children will get through high school with even a basic knowledge of mortgages. With that in mind, discuss the pros and cons of each type of loan, such as a fixed-rate or balloon mortgage. Of course, equity may be challenging to learn about, but it is an essential part of homeownership. At the very least, explain how they might increase their equity by paying loans off early, renovating their property, and using a large down payment. By teaching them how to improve their finances, you’re giving them lessons they will need when they are older.
How to Grow Savings
Even young children can appreciate the importance of saving. Given that, there is no need to wait until they are older to start the conversation about money, but do focus on simple concepts. For instance, go over basic ideas, such as putting money into parking meters and comparing prices. You could also use an allowance to help them learn while rewarding them for doing their chores. Older children, however, can typically handle more complicated lessons, and you might want to introduce them to investing. In fact, they could even make a small investment under your guidance, but always assist them with monitoring any growth. By doing so, they will better understand important habits that will help their relationship with money later on.
Build a Budget
Lastly, it’s vital that your children recognize the value of budgeting. As mentioned, an allowance is a good way for them to experience managing their own money firsthand. However, while they should be reminded to save up for things they want, try not to dictate what they do. This way, they can safely grow from small mistakes they make, rather than learning hard lessons once they’re 18. For added guidance, you could encourage them to use a budgeting worksheet designed for children, and gently ease them into the idea of saving and spending responsibly.
There is a lot for your child to learn. Space your lessons out over time, and try to provide them with the opportunity to make their own financial decisions so they have some hands-on experience. A little knowledge now will do wonders during the years to come.
Image via Pixabay