Learning how to manage money effectively is not an innate skill, but one that takes time to learn at an early age to ensure that healthy financial habits are established. By teaching children how to manage money, it will equip them to have a better chance at success.
1. Show Children How to Save
One of the most common problems associated with managing money is neglecting saving a certain amount, making it important to help your child develop the habit. Teach them to put about 10 percent aside, teaching them to always have an emergency fund.
2. Manage Debt
If your child wants to buy a toy or new video game, teach them about borrowing money while paying an interest rate, which will show them how debt works. You can also teach them about getting a payday loan. In Houston, this is a common option for borrowing money while waiting to get paid for a convenient way to cover unexpected costs at the last minute. You can also show them how to pay the balance each month to manage their debt properly.
3. Make a Budget
Show children how to prevent spending all of their money at once by creating a simple budget. Incorporate lunch money, toys, and even clothes into their budget while showing them basic needs that you budget for as an adult. Show them how to use a basic spreadsheet to organize each category and the amount allocated to each subject.
4. Establish an Allowance
Children will learn how to use money through trail and error, making it important to give them an allowance every week or two that they can practice using for a great Power Finance tool. Instruct them to do chores throughout the week, which will help them to value and respect their earnings. Avoid freely giving them money, which will naturally make them feel entitled to more money in the real world.
5. Teach Children How to Spend
Show your children how to spend their money wisely and how to read prices correctly. Take them along for grocery shopping while showing them the price differences between name brands and generic brands. You can also show them how to stick to a list when shopping, which will prevent overspending and exceeding the budget.
Sales tax should also be discussed depending on their age, as it will help them to effectively calculate it into their budget.
Whether working with an allowance or opening a savings account for your child, there are a number of ways to help your child manage money properly without abusing their earnings. They’ll be able to succeed as an adult due to the habits they formed as a child.