Are you actively teaching your kids about money? If not, how are they going to learn? Not many schools teach personal finance so it is up to parents to ensure that their kids understand personal finance. This will help them to make smart spending decisions, avoid debt, and ideally, reach financial freedom one day.
If you want to teach your kids about money, you might be wondering where to start. You might even be thinking that since you aren’t the best with money, how will you ever be able to help them? Luckily there are just a couple of concepts that form the basis of good money skills. So we will look over these in this post.
And if you aren’t great with money, don’t worry, you can learn and improve your finances at the same time too!
3 Important Financial Lessons To Teach Your Kids
#1. The Power Of Compound Interest
Understanding the power of compound interest is huge. It might not seem very exciting to earn a little bit of interest in your savings account each month, but it teaches kids about the idea of saving. If you never save anything, you are never going to get ahead. And if you can be smart about your spending (more on this below) you can really take advantage of compound interest.
So show your kids when you save some money, you can earn interest. This might blow their mind at first, but they will understand it. And that few cents they can earn is a lot of money to them. To really hammer the point home, have them save money they earn from a job or chores in a savings account and have them take an active role in saving and earning interest.
You’ll know when they understand the concept because they will want to be saving more than they are spending!
#2. Delayed Gratification
Having the ability to delay purchases is a huge lesson to teach kids. I know you don’t want to be seen as that parent with a screaming kid in the toy aisle because you won’t buy them something they want. But you need to get over this.
Your kids need to know how to put off buying something if they don’t have the money. If they never learn this, they are all but guaranteed to be saddled with a mountain of credit card debt when they are older because they just buy whatever they want.
So create a plan for the meltdown at Target and push through with teaching them about delayed gratification. You’ll find that in time, the meltdowns are less intense and happen less frequently because they understand they can’t get what they want all of the time.
#3. The Impact Of Bad Choices
Bad financial choices haunt us for many years. My credit card debt haunted me for 6 years. Buying too much of a house haunted me for 9 years. While you can’t ensure that your kids will never make bad money choices, you can take the initiative to show them that money choices they make have consequences.
One way to do this is to allow them to buy a toy they want with their money. Then when they want another toy, they can’t buy it because they don’t have enough money. Try to keep the lessons as basic as possible so they can understand them.
The sooner they understand about consequences with money, the sooner they will start thinking through purchases rather than just buy something because they want to.
At the end of the day, if you can teach your kids these financial lessons, they will have a solid foundation for making smart money decisions in the future. They will still make dumb purchases and regret not saving at one point or another, but they are human and will make mistakes.
The key is them having a foundation so that they can realize the mistake they made, fix it and make a smarter choice next time around. By teaching your kids about money, you give them the ability to quickly change and adapt.
Author Bio: Jon blogs at PennyThots, a personal finance blog that helps readers improve their finances one day at a time.