I’m a Financial Expert: 5 Ways I’m Raising My Kids To Be Financially Savvy Adults
Money management isn’t always taught to young people when they go through the educational system. As a parent, you likely want your children to know about the importance of personal finance so that they can become self-sufficient when they get older. To help you learn how to raise your children to be financially savvy adults, GOBankingRates contacted two financial experts — Anthony C. Kure, CFP, senior portfolio manager of Johnson Investment Counsel, and Tom Holtam, vice president and senior regional delivery manager at UMB Bank — who shared insights into what they’re doing.
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According to financial experts, how can you raise your kids to be financially confident?
Teach Your Children About Financial Habits Early On
“Understanding the personal nature of wealth management within families is crucial, emphasizing healthy financial habits over merely focusing on earnings,” said Kure.
You want to teach your children about basic financial habits so that you don’t have to rely on the educational system to do so or hope that they figure it out on their own when they start working. You’ll want to help your kids learn about the basics of money management from an early age.
What are financial habits worth teaching your kids?
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Offer an Allowance
“This can teach kids the basics of money management before they are able to have a job and make money on their own,” said Holtam.
You want your children to learn to manage money independently from an early age so that they can handle expenses by the time they start working. This allowance will also show them that there are income limitations that they may have to deal with one day.
Holtam added further insights on setting up an allowance: “There’s no right or wrong way to give your kids an allowance. Some households give allowance for completing a task or earning a certain grade, while others will give an amount and expect nothing in return. We all look forward to payday, so be sure to add consistency to your system, so your kids know which day to expect their allowance. This way, they can start budgeting and tracking expenses, just like you do.”
Let Them Make Decisions
“As an adult, you make money decisions every day — some as simple as packing your lunch vs. eating out and others more complicated, like saving or investing,” Holtam said.
You want to empower your children with the ability to make financial decisions on their own when the stakes are low so that they’re prepared for when they’re older and responsible for larger expenses.
“Allowing your kids to make their own financial decisions can teach them a valuable lesson about how far money can stretch and how they want to use their money,” said Holtam.
Open a Youth Savings Account
“You can often open an account under your own that you can use to teach [your kids] how to use online banking tools and banking apps,” shared Holtam. “The earlier your children learn how to use these tools, the easier it will be for them when they leave the nest for college or start living on their own as a young adult.”
If your children understand banking from an early age, they’ll know how the process works, so they won’t be intimidated by money management when they get older. Having a bank account as a kid also teaches you the significance of setting funds aside and how investing works. You don’t want them to be stuck trying to figure things out on their own when the time comes.
Explain That Money Is Limited
“We recommend parents teach kids that money is a finite resource and have their children experiment with budgeting and prioritizing spending through hands-on exercises, like managing cash while shopping,” said Kure.
If you let your children control the funds through practical exercises, like having them responsible for shopping occasionally, they’ll see firsthand how budgeting works. It’s crucial that your kids know that money has to be earned to avoid the common traps that come with a first credit card.
Share Your Lessons
“Just as it’s important to show and teach how to save, have an open, honest dialogue with your children about money mistakes you have made,” said Holtam. “Bring your kids into the conversation and discuss how and why the mistake was made and what you have done or plan to do to resolve the problem.”
You want your children to know from an early age that mistakes are a part of the process and that managing money isn’t about perfection. The goal is to learn how to budget your money so that you can make do with what you’re earning.
You also want to share the importance of bouncing back from mistakes and navigating through challenging times. The reality is that your children should understand that money won’t always come easily and that life could be filled with difficult financial issues, at times.
Introduce the Idea of Savings Goals
According to Kure, “Introducing the concept of savings, both short-term for emergencies and long-term for future goals like retirement, is essential.”
If you want your children to care about personal finance, they’ll have to find a reason to get motivated. Many young people require some sort of short-term and long-term goals so that they can get excited about the idea of saving money. Once your children learn about goal setting, they may be enticed to start planning for various financial milestones.
“When kids are between 11 and 13 years old, you can begin discussing long-term goals for saving,” said Holtam. “For example, discuss a car-buying goal with your child when he or she reaches pre- or early-teens, and keep him or her involved in the savings process. Look at prices of current cars and discuss budget and long-term financial goals.”
If your kids figure out that setting savings goals will help them land that first car or even that new apartment, they’ll become more enticed to start setting targets. Once they get into the habit of setting financial goals, they’ll likely stick with this into their adult years, when budgeting for major expenses is a necessity.
Practice Recurring Expenses
“Teach your children to make sure they save some of their earnings and appropriately budget the remainder for their expenses,” Holtam said. “Once they have a car or another big purchase they have worked towards, they’ll often need to make regular purchases to manage that item, such as gas, insurance or mechanical work.”
It’s important that your kids learn about handling fixed expenses, as this will be something they must deal with for the rest of their lives. For example, you can have your kids sign up for a streaming service or some sort of digital subscription so that they understand how monthly expenses work.
Closing Thoughts
Kure concluded, “Incorporating these concepts and practices into kids’ financial education helps empower them to develop lifelong financial literacy and a healthy relationship with money.”
If you want your children to grow up to be financially savvy adults, you want to give them practical budgeting advice and allow them to make financial mistakes on their own, while they’re still young enough to avoid real consequences.
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This article originally appeared on GOBankingRates.com: I’m a Financial Expert: 5 Ways I’m Raising My Kids To Be Financially Savvy Adults
