An emergency fund is the foundation of a stable financial life. An emergency fund will help you navigate a job loss or an illness. But one out of three Americans has no emergency savings. Even those who do, don’t have enough saved. Most people need 3 to 6 months of expenses saved.
One of the reasons Americans struggle financially is because they don’t have good saving and spending habits. Living within your income and saving the rest may sound like common sense. But for many Americans, it’s tough because they didn’t start off on the right foot and as time goes on it becomes harder to steer the ship financially.
This is why we need to teach our kids about money when they are young. There are a number of ways parents can involve the kids while making financial decisions.
How To Teach Kids About Money
1. Engage kids early
Kids are never too young to learn about money. You can encourage them to play money games. Ask the kids to add up coins when they can count.
Ask kids to read the prices of items at stores. If your kids are older, ask them to calculate the price per unit of an item you are buying. If an item is on sale, ask them to calculate savings compared to regular prices.
2. Set an example
Kids learn from their parents. If you are spending more than you make, your kids are likely to end up that way too. If you are responsible with your money and involve your kids when you make financial decisions, they are more likely to grow up and be financially responsible adults.
3. Teach them money lessons for their age
As kids grow, teach them lessons that are appropriate for their age. Kids less than five years can count coins whereas teenagers can help with budgeting and investing. Older kids can also be taught to analyze stocks or invest in mutual funds.
Does your son or daughter leave the lights on all the time in their room? Do they leave the computer on at night? Explain to them that they are wasting electricity and money by their behavior.
4. Give them an allowance and help them manage it
Give kids an allowance based on age and help them manage the allowance. Allowance can be tied to doing household chores or schoolwork.
Encourage them to spend the allowance. They will likely make mistakes but it is better to make a mistake with $10 than with thousands of dollars when they are adults.
5. Delayed gratification
Avoid impulse buys for kids’ items. Kids need to learn that they need to wait to buy things. Encourage them to save money for things they would like to buy. Resist the urge to pitch in money if the kid’s allowance is not enough to buy his favorite toy or game.
6. Encourage teenagers to get a job
When kids reach teenage years, encourage them to get a job that pays. Maybe they can mow the neighbor’s lawn, tutor younger kids, or babysit the neighbor’s children. Getting a job teaches them not only about money but also about responsibility.
7. Involve them in big purchase decisions
Whether you are buying a new car or planning a vacation, involve the kids. Help them understand how you make decisions. Ask them to research prices and compare features. They will learn that there are trade-offs in the real world.
8. Encourage giving at a young age
Just like saving and investing, giving to charities is also important for kids to learn. Ask them to donate a small portion of their savings to charity every year. Find out the issues they care about and find a charity they can relate to, and contribute every year.
9. Teach them compound interest
Money doesn’t grow on trees but it does compound when you leave it alone. Help them understand how they can save and grow the money. Understanding the magic of compound interest early will put kids on the path to a great financial future.
10. Dangers of credit card debt
Teach them the dangers of carrying credit card debt. High-interest rates combined with compounding will make it hard for them to pay back the debt.