Teach Children About Money Now, Or Be Ready to Help Later
Monetary transactions look much different today than they did 10, even 5, years ago. Today, consumers can pay for goods and services with a swipe of a card or through an app on a phone. Yes, there are still a few cases that a check is appropriate, and sometimes, cash is just easier. But it is certainly not the norm.
In fact, when kids watch parents spend money, it is usually through a phone or with the swipe of a card. And now with the popularity of online shopping, things just continually show up on doorsteps without even visiting a store or swiping a card, much less paying cash or check. Maybe that’s part of the reason today’s young adults are incurring record levels of student loans while attending college with no idea of the impact their monthly payment will have on their budget or a plan to pay them off. Parents play a critical role in teaching children about money – especially when they do not see or handle money regularly.
From a small age, it is important to start talking to children about the idea of money. Buying ice cream, toys, admissions to movies, and other fun things presents an opportunity to share how there are costs associated with the goods and services received. Harder, but equally important, is to start talking to kids about expenses such as mortgage, utilities, bills, and other living expenses. An allowance can help little ones begin to understand how saving and spending money works. The next step is to consider opening a savings account and letting the child tag along to a bank to make deposits or engaging with the account via technology.
As young adults begin to take on more serious jobs and earn income from employers, take the time to show them what happens to their paycheck with taxes. Many young adults do not realize how much taxes take a bite out of their paycheck, and it can be easy for them to run into credit card debt because they did not budget properly for the impact taxes would have on their income. Assist them with developing monthly and weekly budgets based on their net pay including listing out all expenses such as rent, food, car loan payment, etc. to see how quickly their paycheck can be used up. While working on a budget, it is important to create a budget for their future self. Set up an automatic transfer of a portion of their paycheck to go directly into a personal savings and/or a retirement account.
As society moves further away from handling physical money, budgeting and financial education become more and more crucial at younger ages when minds are most open and formative. Financial education starts early and establishes a set of crucial life-long skills that can keep children out of the debt trap so many adults face today.