How soon should you start teaching your kids about money? As soon as you can!
The reality is that we live in a consumerist society, where children are exposed to messages that encourage them to want things by the time they can walk. According to US industry watchdog Adweek, children in the U.S. aged 2-11 are exposed to over 25000 advertising messages per year.
Desire for items must be balanced with a financial understanding of how to fund them. Sadly, the last few generations have grown up in a world where debt availability has increased very quickly. Neither the golden generation or Baby Boomers had to grow up with this, and many weren’t equipped to educate their children in balancing desire with responsible financial practices.
The baton has now passed to Generations X and Y. Both these generations have grown up in a heavily consumeristic world, and many have made the mistake of creating their own debt burdens. There is a strong need to make sure these mistakes aren’t repeated by Millennials and beyond. Some of us expect the education system or the government to provide the lesson, but it will be most effective if we teach it ourselves.
So where do you begin?
- Manage your own debt first. Your actions speak loudest of all. If you have an inability to manage debt, if you argue about money, or if you’re constantly bringing home new toys and gadgets that are quickly discarded, then you are setting an example to your kids that they will follow.
- Have a spring clean. This may seem unrelated to finances but it’s our consumer spending that creates our greatest debt problems. Sorting out cupboards and the garage will highlight all those things you bought and used once, or not at all. Get the kids involved and talk about each item you come across. They will also learn that many of the things we buy can be a response to an emotional need with no practical purpose. Help them to control their needs and wants.
- Teach your kids how, and why, to save. Creating a savings habit early is crucial. You need to show children how to save but also ‘why to save’. Delayed gratification is not something children understand instinctively – it needs to become a learned habit.
- Explain how credit cards and credit ratings work. Credit cards are freely available (a friend’s 19-year-old daughter was recently given their first card with a $7900 credit limit in just ten minutes online!!!). This can be dangerous for those who don’t understand how credit works. Easy credit can lead to easy debt which will impact your child’s credit rating, and prevent them accessing credit for the important things in life, like buying their first home.
- Discuss retirement. This may seem a long way off but even very young children understand the process of work in bringing in money. If they understand that we reach an age where we no longer work, they will understand that not working will stop the money coming in and that there is a need to provide some money for this period of their lives.
Above all don’t underestimate the intelligence of your child, and their ability to understand these concepts. If they don’t understand the first time then don’t give up. Repetition will eventually see the message sinking in. It is an important part of every parent’s role to help prepare their children for life. Financial responsibility is a primary lesson that neither you or your children can afford to neglect.
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The information in this article is general in nature and does not take into consideration your personal situation or circumstances. You should consider whether the information contained in this article is suitable to your needs and where appropriate, seek professional advice from a financial adviser or other finance professional.