Kids and Money: How to Cultivate Good Financial Skills

After the financial crisis of 2007, kids and money discussions became part of the national conversation. Many blamed the foreclosure crisis on poor financial decisions made by a generation of misinformed young people who did not know how to budget. Members of Congress and parents alike began to call for more education at a young age regarding finances, savings and purchasing power. If you are one of the many parents who has learned from this mistake, you should begin employing useful techniques to teach your kids about money as soon as possible.

Use Allowances Wisely

Allowances have been a common practice in the American household for decades. However, the image of a child immediately running to spend an allowance on impractical purchases is also a common part of the culture of allowances. When you provide a child with an allowance, you are showing that child what it is like to earn a salary. You should use this method to begin discussing the way a salary needs to provide for a family in the long run. For example, deposit the money into a bank account instead of giving it in cash. Ask the child to save 10 percent for a rainy day, and show your kids how to read their bank statements to watch the savings grow.

Teach Kids about Savings

Many individuals new to savings comment that they never knew how enjoyable it was to watch their money grow. The earlier you provide your child with this sense of accomplishment, the more ingrained it becomes as a way of life. Teach your kids common savings rules. For example, ask them what would happen if they received no allowance for three months? Could they continue to do the things they enjoy? Explain the importance of an "emergency" fund in terms they can understand.

Discuss Consumption and Purchasing

One problem highlighted by the 2007 financial crisis was the American reliance on consumption as a way of life. Purchasing, for many, is an act of enjoyment instead of a way to increase net asset value. You can reverse this pattern in your children by showing them valuable purchases versus frivolous purchases. Perhaps the best way to do this is to become more disciplined yourself. If you begin to cut back on consumption to focus on growing your family's financial value, explain the decisions to your children, and they will likely learn to follow in your footsteps.

Talk about Salary and Credit

One of the problems that faces a person who has never learned about money is difficulty discussing it in the future. Your children should be able to enter salary negotiations, ask for raises and discuss bonuses with their future bosses. Give them the tools to do this by discussing salary openly when possible. Tell them about your experiences, and help them understand the importance of open discussions about money. This includes talking about credit, how it is earned, and how it is destroyed. Far too few Americans truly understand how their financial decisions impact their credit. Show your children how your credit is earned through your actions. If possible, allow them to have a credit card to learn good credit skills once they are old enough to do so.

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