10 Ways to Set Your Kids up for Financial Success
You worked hard for your money. Along the way, you learned a lot of lessons about financial success. It’s only natural that you would want your kids to benefit from the mistakes you made and the successes you’ve had. Here are 10 ways to set your kids up for financial success:
- Start saving for college – A lot of very successful people have trouble financially because of a student loan burden. You don’t have to pay for their entire college tuition, but starting your kids off with a lower loan amount makes things easier for them as they set out into the world on their own.
- Take them to the bank – Most banks will let you open a checking account with a parent’s permission when children are 13 years or older. Don’t do it for them, go with them. Let them see firsthand how banks work, how to talk to professionals, and what it means to save money.
- Teach them how money works – Take them into a store and give them $5 or $10 and some goals. Let them figure out how to find prices, compare what they want to what they can afford, and then make a choice on their own for what to purchase.
- Teach them the importance of saving money – Have your kids put money in a piggy bank every few days or every week, then after a few months, let them take it out and count it. Let them see how a few coins and dollars here and there can grow into a surprisingly large amount of money.
- Let them make mistakes – As with other areas of life, no lesson is learned better than the lesson experienced. Let them “waste” money on candy or stickers. They’ll eventually learn what it’s like to want something but not have the money to buy what they want. This will teach them the importance of saving money for future needs instead of splurging on something for instant gratification that may have no real value tomorrow.
- Jump start their credit – One of the key elements of a credit score is the length of credit history. Unfortunately, life doesn’t wait for you to build up a credit history until after you turn 18. Get a credit card with a low limit and put your child on the account. That starts the clock ticking. Putting your 16-year-old on an extra credit card account that is responsibly used gives them a 5-year-long credit history when they turn 21. Don’t loan them cash for a car. Instead, get a loan from a lender so they can learn about loan terms, interest rates, and building good credit.
- Open a savings account in their name – Offer to match whatever they contribute, as an employer would with a 401(k). Make sure they understand that they can withdraw money at any time, but it’s best to leave the money in savings until they really need it. If they don’t need it for a while, that’s a bonus, as chances are good it will come in handy for a down payment or large purchase when they are ready to set out on their own.
- Teach them Finance 101 – People often complain that schools don’t teach basic finance. While schools don’t usually teach students about personal finance, parents should. Show them your paystubs. Show them what percentage is withheld for taxes. Show them health insurance deductions and why that matters. Explain the percentage of your monthly income that goes to paying bills and how much is left over for extra things like going to the movies or eating out. This will give them a better understanding about where your household income goes and why they can’t always have that expensive toy or game they want.
- Show them how to budget – If you don’t know how to set up a household budget, do some research or grab some books from the library. Far too many 18-year-olds hit the real world thinking the only kind of budgeting happens on a spreadsheet, and they’re in for a shock when they realize it’s a lot simpler on a computer screen than it is when you have to apply it to real life.
- Let them earn money – Nothing teaches a person the value of money like learning the amount of effort it takes to earn it. For the youngest, allowances are fine, but older children should understand the difference between contributing to household chores and doing something extra. For example, maybe mowing the lawn pays $20, but doing the dishes when it’s your turn is just being a contributing member of the family unit. Guide them through the thought process of “I would have to do this much work to buy that…” and watch the wheels start turning.
No matter how old we are, sometimes we could all use a little advice about managing our finances. Even the most responsible people can find themselves in a tough financial situation with poor credit at some time in their lives. If you need assistance improving your credit score, reach out to Key Credit Repair today for a free consultation.