It’s important to impart life’s lessons to your children. Prime example: Will your children be able to handle their finances when they become adults? Don’t assume they will.
“Financial illiteracy” appears to be rampant in the younger generation. The same kid who is adept at using a smart phone or iPad may have trouble with basic math skills, balancing a checkbook or managing money. And, if your youngster can’t control financial impulses now, it could be a harbinger of crushing debt in the future. Consider these five tips.
1. Curtail spending. Rein in children inclined to indulge in spending sprees. Take the “weekly allowance” to the next level by helping a child develop a monthly budget. Review the results with your child to reinforce good habits.
2. Emphasize savings. Part of the budgeting process is setting aside money. It’s important for your children to learn, at an early age, about the power of compounded interest. Use online calculators to demonstrate the true value.
3. Dip into investments. Introduce your child to investment basics by having him or her acquire shares of one or more stocks or mutual funds. Your child can learn a lot by charting the investment’s progress on a regular basis.
4. Take out a loan. Even if you act as the lender, your child can learn valuable lessons by borrowing a small amount of money. Again, an online calculator will indicate how compounded interest piles up. Your child may be encouraged to avoid debt.
5. Factor in taxes. Finally, it’s not what you earn, but what you keep, that matters. Show how taxes can erode earnings and why they must be factored into financial decisions.
These five steps can benefit your children in the future. Start them on the right path.
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Tags: financial literacy
Written by: Doug Rodrigues