- December 15, 2021
- Posted by: Curated Contributors
- Categories: Blog, Personal Loans
As a parent, teaching your child the importance of money is paramount, but it can also be tricky. On the one hand, you want to provide your child the best life they can have, showering them with gifts, and experiences they deserve. But on the other hand, you understand the importance of restraint and the need to make your child realize the true value of money. If you’re a parent wondering how to balance these two sides, this article will provide you with three effective ways to do just that.
Provide them Opportunities to Earn & Spend
The best way your child will learn how to handle money is through experience. Provide your child a set monthly allowance and encourage them to use it at their discretion. Kids being kids will spend the money on impulse purchases and quickly find themselves with an empty wallet. Use this as the perfect time to introduce them to the art of budgeting. In your lessons regarding budgeting, teach about simple concepts of income and expenses, and how they can buy the bigger things they crave (clothes, video games, trading cards, etc.) faster if they learn to control their impulse to spend money on every second thing they see at the store. As reported by InCharge, budgeting will lead to kids developing self-control and becoming conscious of their spending habits.
Teach Them How to Use Credit
As reported by TeenVogue, late payments on credit card debt for individuals aged between 19-28 years reached an eight-year high in 2019. One of the driving factors of this was the lack of understanding young adults had regarding the use of credit cards and interest payments.
Add your child as an authorized user on your credit card to to teach them the best practices for handling credit, such as:
● Having a credit card does not translate to unlimited money as purchases always need to be paid before the due date
● Failure to make payments leads to added interest making the amount you owe larger
● Conversely, making timely payments improves one’s credit score making it easier to buy a phone, car, or home in the future
Early education on credit will help your child avoid taking on unnecessary debt in the future.
Get them Involved in Real Estate
Similar to credit, another important debt instrument your child should learn about is a mortgage. Understanding how to use a mortgage to their advantage will help your child become a responsible homeowner and obtain financial stability faster. When teaching them about mortgages, focus on the importance of pre-approval which is a process through which the bank will ascertain the amount of loan they are willing to extend. Based on this amount one can make an informed decision regarding properties they can afford and spend within their means.
If you are in the process of applying for refinancing your mortgage, include your child in the process. Delegate the task of researching refinance loan rates and let them use their wits to understand its workings and procedures. Surely, they will have questions, but this exercise will make them better prepared than most individuals their age.
Additionally, using your home as an example, teach them the steps you have taken to increase its value since the purchase. This can include the DIY painting project you did together, the recent kitchen remodel, etc., which they can undertake in their future homes as well.
When it comes to financial literacy, it’s never too early to start. The more knowledge and experience your child will gain, the better they’ll be prepared for the future.