Do your children understand the importance of a budget or do they think money grows on trees? If they tilt in the direction of believing the money supply is endless, it’s time to sit down and have the talk.
According to a 2015 survey conducted by the National Foundation for Credit Counseling, only 40 percent of U.S. adults have a budget and keep a close eye on their spending habits. By taking an active role in your children’s financial education, you can help make sure that number rises.
“As a bank, it is important to us that the next generation of consumers understand how to save and use credit responsibly,” Peoples Bank CEO Al Vermeer said. “While Peoples Bank is involved in many community outreach projects to help teach financial literacy, when parents take an active role, it only reinforces the importance of responsible spending.”
4 ways to teach your kids about finances
One of the most effective ways to teach kids about credit and finances is through hands-on experience. Following are four simple ways to help your children practice with money and credit.
1. Allowances. Give your child a monthly allowance and explain the importance of saving. If they spend their entire allowance and ask for more, consider giving it to them with the stipulation that it will come out of their next month’s allowance. Explain to them that this is like a loan which must be repaid. You can also help them keep track of their spending, so they can see how quickly it adds up or goes away depending on how they use it. You can also tie allowances to daily chores and teach your children that money comes from hard work.
2. Budget. Children have the luxury of 100 percent disposable income. With no bills to pay, worry-free spending is easier. Although most children do not have bills, you can teach them to budget by helping them keep track of their spending and saving. Create a spreadsheet that they can use to track their income and give them an overview of their monthly spending habits.
3. Teach them to save. Allowances usually are not large enough to help children afford big-ticket items, such as video gaming systems or a new smartphone. Help them understand how much they need to save each month to afford such items in a specified amount of time. For example, if a new video game system costs $300, and your child wants to purchase it in six months, he would need to save $50 per month to afford it. Knowing this will help him budget the remainder of his allowance.
4. Introduce them to your bank. Explain the importance of banks, and how the bank can assist them in building your savings. Opening a savings and/or checking account for them can help them learn the importance of saving while also helping them keep track of their money. Managing such accounts will help them feel comfortable when dealing with the bank.