Consumer credit is on the increase, and the levels are rising. An average American faces the trap of credit card debts, mortgage, medical loans, auto loans, personal loans, and student loan debt, etc. CreditCards.com reports that more than sixty-five percent of Americans are unsure of ever clearing their debt and surviving financial hardships with millennials expected to stay in debt longest. It raises the question if people are as aggressive as they should be in handling their debt situation. Are young adults keen on taking back control over their finances?
The cost of living is rising by the day, and life gets tougher for every generation. If you think things are tough now, they will only get tougher for your children. It is up to you to equip them with the right skills to build them into financially smart adults. Start teaching your kids to be frugal with their gifted money. Instill the right attitude and money-related habits in your kids at an early stage with these tips.
1) Be a Good Example
Your child is not going to be frugal with money if you are not. Buy second-hand clothes and toys and take your kids along to these shops. When they outgrow the toys and clothes, sell them and make some money.
When they see something in a store and say they want it, instead of getting it immediately, use this opportunity to teach them the thirty-day rule. Go back to the store after thirty days and if they still need it, get it. It prevents them from developing into impulse buyers. Alternatively, let them wait until the next budget when you can allocate money to the item – if you can afford it.
2) Teach the Art of Budgeting
Whenever your child receives money, sit down with them, and draw a budget together. Allocate some amount to saving which you can put in a piggy bank and some to giving for a charitable cause.
Next, have them list down the items they would like to buy. Discuss these items, showing them the difference between needs and wants. Help them shop and demonstrate how to get the best deals by bargaining and comparing prices.
When they develop the art of budgeting and learn its importance at this early age, it will stick with them through adulthood. Also, have money talks as a couple and make the household budget in front of your children. Only spend on what you have planned and avoid buying anything unplanned for.
3) Let them Account for their Money
Having already guided them on the process of budgeting and spending wisely, give them a chance to handle some of their gifted money on their own. Later, sit them down and have them account for every penny. It teaches them not to be a careless spender.
Practice tough love here. Praise them for saving and spending wisely or reward them with some extra TV time. If they wasted the money, deny some of their requests. Demonstrate that they could have managed to purchase what they needed on their own if they hadn’t used all their money on ice-cream.
4) Create a Waiting Period before Spending
Have your kids wait before they can spend their gifted money. Ask them to take one to two weeks to decide what they want to do with the money. Encourage them to evaluate the price of any item they purchase and how long it will last. Teach your child to compare the value of what they will gain with a purchase as against what they will forego.
Instituting a waiting period goes a long way in preventing impulse buying. By not restricting what the child does with the money and giving them a chance to make their own decisions, it encourages them to be more responsible and prepares them for the real world.
5) Provide Interest for their Savings
If you want to build a saving culture in your child, demonstrate the benefits of saving practically. Teach them about interest earned on savings and create a reasonable interest rate for their savings. For instance, for every two dollars that they add to the savings, you can add a quarter.
They may not understand much about interest, but the additional money is enough incentive to keep them saving. The habit will stick with the child through adulthood.
6) Hold Money Talks with Your Kids
Most parents acknowledge the need to have a sex talk with the kids, but few discuss finances. Have a one on one conversation and encourage them to ask any question. Discuss credit and debit cards, and how they work – most kids think the credit cards are an endless source of funds.
Be open about your income, investments, insurance, retirement plan, and how you save. Explain to them about the mortgage on the house and interest. They may not fully understand it all at a young age, but they are sure to grasp something. As you continue exposing them to these concepts, they become more money savvy, and this will contribute to their success later in life.
7) Let them Work for Money
It’s good to let your children handle money by giving a few dollars on their birthday or after performing well in school. But make them work for it as well. Let them feel the joy of getting rewarded for age-appropriate tasks such as washing the car, cleaning dishes, or babysitting the little ones.
When they need a new toy or play gadget, let them work for it. The child should learn early in life that it takes work to have money and fulfill needs. The earlier they know how the process works, the better. You will bring up a frugal hard worker.
Why Teaching Kids to be Frugal is Advisable?
Teaching children to be frugal with their money holds the following benefits.
- Prevents Them From Getting Entangled In A Web Of Debt That Holds Most People Back: When you teach your children to budget, they learn to live within their means and avoid unnecessary debt or loan. Most people with unmanageable credit card debt or short-term high-interest debts could be in a different situation if they purchased what they could afford.
- Prepares Them For A Life Of Success: No successful person is careless about money. They got to where they are by adequately managing their money even after making so much of it. By building the right attitude towards money in your kid, you may be creating the next billionaire.
- Makes Them Responsible: Teaching your children responsibility in their finances makes them accountable in all other areas as well. They grow up understanding the value of hard work and being answerable for their actions. Spoilt kids make irresponsible adults.
- Teaches Them About Giving: By teaching your children to dedicate some of their money to charity, you instill the quality of giving in them which sticks to adulthood. Successful people are givers.
- Saves You Money And Time: As you effectively teach your children to be careful about expenses, you get to save your money as well. Moreover, paying them for age-appropriate house chores frees up some of your time.
- Teaches Them To Be Creative And Resourceful: When your kids watch you make do of what is available, they learn the same skill. They learn to use creativity to find solutions and use imagination to make the existing funds fit their needs.
Just as you strive to ensure your child remains healthy and well-mannered, strive to make them frugal with money. It’s a harsh world, and you need to arm them with the right skills. Any child who knows what money is, and understands its use as a medium of exchange, is ready for a few lessons on handling finances. Use the money they receive on birthdays and special occasions to teach about budgeting, accountability, and saving.
Teach them to avoid impulse buying by taking time before making any buying decision. Sit the child down and discuss finances, let them understand about loans, debts, credit cards, mortgages, and making money. Most of all, practice what you preach. If you tell your kids to do one thing but do the other, they are not likely to take your lessons lightly.
By teaching kids to be frugal, you are sure to raise your kids into responsible and resourceful adults, ready to take on the world and succeed. This is indeed one of the secrets to right parenting.