When your children are young, teaching them the concepts of money, buying and saving can help them with financial fluency later in their lives. Once kids learn that money doesn’t grow on trees, parents are responsible for teaching them basic attributes of personal finance. It’s up to parents to educate their kids on the habits, terminology and potential risks associated with financial health.
When kids are young, you want to teach them the importance of earning money for a job well done. It’s hard enough to convince kids that they have to work hard to earn money, so no one would would blame you if you wanted to avoid the topic of credit cards (aka the “buy-now-pay-later loop hole”). Credit is a mounting crisis in our country, so maybe more education is just what we need. In 2013, revolving credit in the United States jumped to $849.9 billion, according to the Federal Reserve. The average U.S. household has $15,270 of credit card debt.
Start by explaining the value of trust. When used responsibly, credit cards can build your trust, aka credit score, an important factor when they grow up and want to buy a house (they may be too young to understand what a mortgage or loan is). Emphasize the importance of paying bills on time, and explain that late payments lower your trustworthiness (credit score).
Once kids learn the value of money, they should learn the dangers associated with it. One of those growing dangers is identity theft. The Identity Theft Resource Center reported 619 breaches in 2013, a 30 percent increase from total breaches in 2012. Children need to know that security, especially online security, is an important element of handling finances responsibly. Even at a young age, children are at risk for identity theft. Criminals will use a child’s social security number to open a credit card or bank account.
Explain to your kids why it’s important to never give out personal information to someone they don’t know. To protect them further, identity theft protection providers can monitor data and alert customers to any unusual activity. As identity theft continues to rise, these services will only become more valuable. Your children may not understand the ins and outs of identity theft, but they should know the importance of privacy.
This may seem a bit over your child’s head, but teaching them the basic principles of investing at a young age will help them with long-term financial goals. Investing is one of the most efficient ways to build a long-term financial nest egg, but many adults don’t know the first thing about investing. Get the education started early with your kids explaining how investing works. Ask your kids what they want most and how they plan on getting it. If they get $50 for a birthday present, show them how they can put that in a savings account or CD to make more money in the long run. Investing can deliver exponential returns and set up your children for the future. The sooner they learn to value this tried and true financial tactic, the better off they’ll be.
Have any other concepts that kids should be taught about finances? Let us know in the comments below!