As any parent knows, kids have questions. Lots and lots of questions. In fact, according to a recent study, curious kids ask approximately 73 questions a day. From the easy questions of “why do I have to brush my teeth” to the harder ones of “how do flux capacitors work?”, they ask them; and, they expect you to have an answer. So why not be prepared to answer those questions when it comes to being smart with their money. Getting back to school is a great opportunity to talk to your kids about the importance of saving, wise spending and future borrowing and credit options. So where do you start?
The importance of saving. The fundamentals of any successful money management plan start with saving. Easily said than done, the earlier we learn how to set money aside to pay for the things we need, the more disciplined we are when we start to earn money to support our lifestyle. As simple as a cute piggy bank to actually opening up their own savings account at a financial institution is a great way to teach them the value in every coin and dollar they earn. Remember, as they are starting out, to give them real currency to put into their savings, instead of transferring money or putting money into their accounts for them. This will help them see its value and appreciate how much they are saving. Talk to them about interest, restrictions on withdrawals, and convenience services like auto-transfer to help them research options when it comes time to open their own accounts.
The value of wise spending. While what kids spend their money on does not seem like much now, it develops spending habits that carry them into adulthood. Running to get fast food, buying the latest name brands in clothes and shoes, and begging for the latest technology and video games can develop unrealistic purchasing power for when they start to accumulate “real money” with “real bills.” Help your kids develop spending plans (or budgets); it helps set goals, see progress with saving, and see where money is being spent. If their plan starts to get off track, help them evaluate where there money is going
and make adjustments to reach their goals. Make purchases with cash so they, again, realize the value of their money and evaluate the need of what they are buying. Finally, ask them if they understand what a checking account is, the difference between a debit card and credit card, and the importance of keeping up with their account balances to avoid overdraft and other fees.
Borrowing for their future. Most first encounters with borrowing comes with the purchase of a new, or new to them, car, or a low-limit credit card to build credit. Before they get there though, it is important to discuss why people borrow money, interest rates and credit scores, and their obligations when it comes to paying back the money they’ve been lent. There are lots of resources online, including Banzai Financial offered by GKCU, that can help them understand all the terms and impact of borrowing has on them personally. Answer their questions about saving for a down payment, insurance and what happens if they are unable to make their payment. The best practice is talking with them about your own loans and letting them see the obligations with your family budget. If you need extra reinforcement, stop by your local financial institution for a quick educational Q&A session. The answers you give them today will build success for their futures.
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