With a record number of adults having credit card debt, the desire to end the cycle of debt is one that can loom large. Knowing how stressful it is to carry debt makes parents want to teach their kids better than perhaps they were taught about money so that as kids age, they do not fall into the same trap. This means having open and honest conversations about money and why it is not possible to always buy everything people want so that they have money for the things they need. And the earlier that parents teach their kids money lessons, the more financially healthy they will be.
When kids see their parents spending outside their means, they see this as what is normal. Because of this, as kids age, they believe that they can have whatever they want whenever they want, just by having a credit card. What they do not realize, however, is that when this habit is repeating time and time again, debt begins to pile up. And for some, they become so entrenched in debt that it feels like they cannot escape it, something of which could be avoided all by being taught healthy financial habits as a kid.
Here is how to teach kids to be financially healthy.
Teaching Difference Between Needs & Wants
One of the most valuable concepts that kids can learn is that there is a difference between needs and wants. And the sooner that concept is engrained in kids, the better financial health they will have as adults.
According to Cortland Bank, kids will mimic what they see of their parents. For many, this means witnessing impulse shopping at every turn. Because of this, kids believe that they can have what they want when they want it as long as they have a credit card to put it on. And when kids see this, the cycle of overspending and creating debt continues for another generation.
Kids need to be taught that while they may be disappointed, there will be times when they will not be able to buy everything that they want. Instead, kids should be taught that they have options to save their money if they want a particular item or they have to realize that for the time it is out of reach financially. When kids do not live outside of their means and wait to purchase an item until the credit card is used as an extension of the checkbook, they do not incur credit card debt and in the process, they learn the difference between need and want, always having enough money for their needs.
Teaching The Value Of Money
Many times, kids overspend as they age because they never learned the value of money. As such, learning what the value of a dollar is can help kids understand just how hard people have to work for money and how much of it is needed to buy goods.
According to Forbes, kids have to be given money of their own so that they can use it to pay for what they want. When they have to pay for something, kids see just how much of their money is used to purchase it and how much they have left as a result.
As such, by giving kids an allowance, they have the opportunity to work to get money through household chores and understand how much work needs to be accomplished to make money. By doing this they see that money does not just appear out of the sky and that it takes effort to have it. And as a result, they understand much more clearly what the value of a dollar is.
Stress The Importance Of Saving
By teaching kids, the importance of saving in terms they will understand, they are going to be more apt to want to put away some of their money. And the sooner that they get into the habit of doing this, the more financially healthy they will be in the future.
According to Bankaroo, there are several reasons to introduce to kids regarding saving money. Some of them include:
- Saving helps to purchase what you want without going into debt
- Putting money away creates an emergency fund
- Knowing there is money put aside creates financial independence
- Saving money provides opportunities to try new things
While this may not all resonate with kids immediately, as they get older, they will see just how important it is to have a little nest egg to fall back on. After all, when there is money in the bank, there are options. When there is not and people are overextended, those options get slimmer as the debt increases.
Start With A Piggy Bank & Grow From There
To best save, kids should start with a piggy bank so that they can have a physical representation of what has been set aside from the money they have made or been given. By doing this, every time money is set away, they can feel the weight of the piggy bank getting heavier and heavier.
According to Language Kids World, when kids are given a piggy bank from an early age, it is fun to put money into the bank. It does not register that what is happening is saving money. However, once saving money becomes a habit, watching the money in the bank grow can create a sense of pride in what has been accomplished.
Once the money becomes too large to be accommodated by a piggy bank, kids should transition to a bank. That way not only are they still able to put money away but they can grow their money at the same time. By continuing to do this through adolescence and teenage years, as kids reach adulthood, they will have a good amount of money put aside. And they will have learned how to be financially healthy at the same time.
Source: Cortland Bank, Forbes, Bankaroo, Language Kids World