The teen years are often the first time your kids will start to earn or manage their own money, either through a part time job or an allowance. It’s important to establish good financial habits now as it can pay huge dividends in the future. Teaching your children to be smart about money will not only benefit them in the long run but you as well. While it’s important to talk to your children about their finances, it may often be difficult to find a place to start.
First it's important to be transparent about your finances, even if you are having difficult financial times. Let them know and show them how to work through it. Children whose parents are transparent about their finances tend to be smarter with their own money and realize its impact. Tone is also extremely important when discussing finances with your children. Rather than have money talks turn into a lecture, have a conversation with them to discuss how they can be financially smart.
Next, teach your dependents about budgeting. If they have cash flow from a part-time job or allowance, set up a budget that tracks how much is designated for saving and spending. You can also show them your own budget to give them a better idea. But, if you are uncomfortable with that, present a fictional budget scenario based on their potential profession and where they want to live. This will encourage them to work towards their goals and understand the real cost of living for their proposed profession. It also prevents the disappointment of not understanding why their first paycheck isn’t quite as much money as they thought it would be.
This brings us to our next point, teaching your children about the true cost of living. One way to do this is to have your children watch you pay bills from start to finish. This shows them just how money is spent on living expenses. If you are comfortable discussing your paycheck, show them just how much is taken out for taxes, retirement, and health insurance. This shows them that money is not infinite and they can better understand living within their means. This is crucial for our industry as a monthly mortgage payment usually takes up a good chunk of monthly bills. By displaying different cost of living charts, or even the different payment structure of a 30 year mortgage vs a 15 year mortgage, you can show how fixed costs are integrated into a monthly budget.
Lastly, an important topic to cover with your children is the difference between good debt and bad debt. Debt is often a part of being an adult but you need to teach your children the difference between good and bad debt. Generally, money borrowed at low interest rates that helps you grow your wealth over time, like a mortgage or student loan, is good debt. High-interest consumer debt is bad debt.
Teaching your children to be financially smart now, can have a huge impact on their future and can help them avoid some potential headaches. Not to mention, it might help you avoid some potential headaches too.