According to the Federal Reserve’s latest numbers, the average American household has over $135,000 in debt. This suggests that many people are living beyond their means, putting themselves in the red. Fortunately, there are financial habits that we can teach our children now to prevent them from getting into a tough spot financially. Here are 5 lessons that we at Promocodes.com would teach our children to help them become more financially savvy:
Make and Follow a Budget
Planning is key to help teach children to live within their means. They need to know what their means are and where their money is going every month.
To do this, teach them how to create a budget. They should know how much money they have coming in every month and from where. Then, help them make a list of all their expected expenditures with how much each will cost them. If they end up spending more than they’re bringing in, it’s time to review the budget and make some changes.
If your children are too young to make a budget, they can learn this principle by helping you balance the spreadsheets. Let them see the budget and discuss expenditures as a family, so children understand that it’s important to focus on buying needs over wants and living within their means.
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Track Your Spending
After making a budget, it’s important to track spending. Have your children record every cent spent and where it went. There are several apps that can help track spending, or help them set up a simple Excel spreadsheet. Remind your children to keep receipts until they get a chance to record how much they spent and on what. Before children start earning money, let them help you use your app to track money. Make sure to discuss why you use the app and how it helps you to financially.
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Be Wary of Credit Cards
Many financial experts will tell you to refrain from opening credit cards at all. Credit cards allow people to buy now and pay later; however, a better financial habit to teach your children is to save until they’re ready to make the purchase. Remember that cash is king! Teach them that they’ll be better off making purchases with cash.
If they decide to open a credit card, remind them to pay it off every month and choose a credit card that will provide great benefits.
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Build Your Savings
As a good rule of thumb, teach your children to follow the 50-30-20 rule. That means that 50% of their income goes to paying for the things they need, 30% of their income goes to things they want, and 20% of their income should go into savings. They can readjust this to fit their needs, but make sure that they understand the importance of building their savings for an emergency fund. Remind them that you never know when the car may need maintenance or a health concern will lead to a big hospital bill. Savings can ensure that these emergencies won’t put them into debt.
Limit Your Loans
Sometimes you need to take out a loan. Maybe they’ll need help paying for their education, starting a business, or buying a home. Even though they don’t want to be swimming in debt, some loans can help them in the long run, especially a student loan. Talk to them about not taking out too much money and using a reputable financial institution. Help them research to find the best rates from a loan company, like Blue Trust Loans, they can trust.
These are 5 things that we would teach our children to help get them on the right track financially. Many of these lessons are ones that can be taught and practiced from a young age. Do you agree with these tips? What financial lessons would you teach your children? Share your thoughts in the comments below.