Odds are you’ve had financial stress at some point in your life. If you really think about it, most of the financial stress we suffer is ultimately our own fault. We spend more than we should and save less. We buy things we don’t need and fail to give money the respect it deserves. One big purchase on a credit card can result in payments that never seem to end.
If you could go back in time and eliminate all of your financial errors, your life would probably be very different. Though it’s never too late to make improvements, it’s much easier to prevent challenges than it is to solve them. You can help your child avoid such financial challenges.
You can give your child the gift of financial wisdom.
Consider discussing these ideas with your children:
1. Consider the real cost of what you’re buying. A $500 stereo doesn’t just cost $500. Invested at 10%, $500 could grow to almost $27,000. This is commonly referred to as opportunity cost.
· If you spend your money on something, that money isn’t available for anything else, like investing.
2. Show your child how to use a simple savings calculator. These free calculators are available all over the internet and are a great way to show what can be accomplished by consistently saving a little money each month.
3. Teach them about debt. The average household has over $7,000 in credit card debt. When kids go to college, they’re inundated with credit card offers from the first day on campus. Imagine how much better your lifestyle would likely be if you were debt-free. Teach your child not to fall into the debt trap.
4. Start building their credit. Consider co-signing for a credit card, if they aren’t old enough to get one by themselves. Look for a card with a low rate and no annual fee. Teach them how to use the card wisely.
· An alternative is to take out a loan together. Banks will loan money to anyone if the loan is fully secured. With a small deposit in a savings account, a comparable amount can be borrowed easily.
· Most young adults are unable to purchase a home for several years, often due to a lack of credit history. Get started early.
5. Pull their credit report. After some credit building activities, teach your child how to view their credit report and check for errors. The majority of credit reports have errors, typically not in your favor.
6. Teach them how to save. Most of us pay our bills, have a little fun, and then plan to save whatever is left. There’s rarely ever anything left with that approach. Teach your child to immediately save 10-20% (or more) of every dollar earned. Think about how much money you’d have if you had done the same since you were 18.
7. Teach them to be giving. Allow your child to choose a charity and contribute to it. For a young child, it might be just a few dollars. You child will ultimately come to see that giving affects them as much as it does the person or organization receiving the money.
8. Make them work during the summer. All teenagers want more money. Give them the chance to earn it. Their perspective will change.
Money is an important part of life. Money provides security, opportunity, and a greater ability to help others. You have a lot of control over the financial habits your children develop. Help them to have a financially successful life.