All too often, parents neglect to teach their child basic budgeting and financial skills. This lack of knowledge can spell disaster as the child sets off on their own. Savvy parents understand the importance of equipping their child with the knowledge and tools that they need to stay out of financial trouble and build wealth. Here are three concepts to make sure your child understands before they leave the home:
A fundamental cornerstone of solid financial management is the ability to save money. Fortunately for parents, this is an easy skill to teach at an early age. Using a clear piggy bank will give younger kids a visual representation of the money they have saved. Older kids will benefit from a savings account at a bank, showing them how their money is working for them by accruing interest. Explaining the difference between needs and wants will help children to prioritize expenses. Involving the child in your own saving goals, such as putting money away for a family vacation, will help them to see the vast payoff of this disciplined money management.
Using a Credit Card Responsibly
First Capital Bank of Texas advises that before credit card offers start flooding your teen’s inbox or social media feed the moment they turn 18, you need to make sure they understand the advantages — and potential disadvantages — and why paying only the minimum amount can add up. A debit card is a good practice lesson for teens learning how to manage credit. Once your child has demonstrated responsibility with using a debit card, they can graduate to a pre-paid credit card. This will teach them valuable credit management lessons before they enter adulthood and gain unsupervised use of credit.
Basics of Investing
Once your child has mastered the tenements of saving and using credit responsibly, you can begin teaching them about the basics of investing. LuckScout.com points out that it is important to cover concepts such as the principles of risk versus reward, the power of compounding interest in building wealth, and the general fluctuation of the stock market. You do not even have to purchase stock to teach these lessons. Simply following the market will help to build their knowledge about this complex concept.
By taking the time to equip your child with a solid base of financial knowledge early in life, you will be setting them up for success for a lifetime. You cannot afford to neglect this crucial life skill.