As parents, it is our job to prepare our kids for the world so that they can be productive citizens in it. We teach them right from wrong, the faith we were raised with, and how to be kind to your fellow man. The list goes on, right? Often, the one thing we don’t teach our kids is how to be financially savvy. The United States has one of the most sophisticated financial ecosystems in the history of man and yet only 18% of people are considered what we call “financially fit”. When I was a personal banker I found myself having to teach what a checking and savings account was before opening them. You could leave it to the schools but only 4 states (Tennessee, Missouri, Utah, and Virginia) require a personal finance class. Even if you live in those states you are not off the hook. It has traditionally been up to parents to teach this very important skill. Today I would like to show you a few things to do with your kids to start them down the path of financial freedom.
1. Have A Conversation
Talk about money with your kids. Explain to them its value and how it is used. As much as you can when they are with you while you pay for things, pay with cash. This shows that money is a tangible thing and it is gone once you spend it. Debit and credit cards can be confusing when trying to drive this point home. How many times have your kids asked for something, you say you have no money, and they say casually to you to “just pay for it with your card”?
2. Pay Them
Give your kids an allowance. Not a whole lot, just a little bit. One rule of thumb is to give them a dollar for every year they have been on earth. So if they are 7 give them $7 a week. Once they become a teen give them that same pay rate but once every two weeks. For example, if they are 14 give them $28 every two weeks. This forces them to put those critical budgeting skills to the test. And if they don’t do their chores or do them incorrectly, deduct from their pay and explain that this is how it works in the real world.
3. Take Advantage Of The Teachable Moments
Turn a trip to the bank into a teachable moment. Tell them why you are going to the bank and explain in detail the transaction you will be performing. This is their education into the banking world. Usually the bank representative will help in the process. Open up a savings account for them while you are at it. And if you overdraft, explain what happens and what the consequences are. Some of you may not like this but the world is not cookie-cutter awesome. There are shortfalls. They need to learn these lessons now as opposed to on their own, when then can get in serious trouble.
4. The 5 C’s Of Credit
Explain to them how the credit system works. Explain your own triumphs and pitfalls with credit. Do they want an XBOX 1 or PS4? Treat it just like you would be treated if you went and got a car loan. Go to Gamestop, explain the terms and conditions, charge them interest and buy it. If they get $28, make that their down payment. Get clever with it and make out a whole application for them to complete. And if they miss a payment or condition- thats right- repo that bad boy. This is the beginning of using credit wisely.
What’s The Bottom Line
Our kids are our legacy. How they conduct themselves in the world is a direct reflection of what we’ve taught them. Pass down good money habits. If your parents didn’t teach you because their parents didn’t teach them then BREAK THE CYCLE. Not teaching them this important life skill can set them back and possibly have them paying for mistakes they made at 18 well into their 40’s.#AnOwlInYourCorner