5 Things You Should Teach Your Kids About Money
Today’s schools are not known for teaching kids a great deal about managing money. In fact, many young people even graduate from high school without knowing how to balance a checkbook or the importance of saving for the future. So, in order for children to learn how to have a successful financial future, the bulk of their teachings will likely need to come from home. There are a variety of important topics that relate to finances. Here are a few of the top tips that kids should be taught about money:
Don’t Get Into Excessive Debt.
One of the most important topics that kids must understand about money – especially in light of the recent economic downturn – is that they should not ever get themselves into excessive debt. In this case, it is a good idea to teach them the difference between “good” debt, such as a mortgage, and “bad” debt, such as high-interest credit card balances. This is even more essential for those who are preparing to go off to college, as the credit card companies do a lot of advertising about “easy financing” to college students.
Some Financial Instruments Have More Risk Than Others.
Although it is important to invest, kids must understand that different types of investment options will carry varying risk. For instance, although investing in stocks could produce a higher return than bonds, there is also a great deal more risk of losing principal as well.
Know How Liabilities Can Affect the Value of Assets.
When teaching kids about how to build their net worth, they should know that even though they may accumulate a large number of assets, there may also be the need to finance some or all of these assets – essentially lowering their overall amount of value by the balance that is still owed on them. Likewise, kids should also be aware that financing assets that can appreciate such as property is better than financing a depreciating asset such as expensive furniture or home electronics.
It’s Never Too Early to Save for the Future.
Teaching kids that it’s never too early to start saving for the future is another top lesson. By showing them the “magic” of compounding interest, it will be easy for them to see that by starting to save at a young age will allow them to build up the value of their savings by a great deal more than if they wait until later in life to begin.
Pay Yourself First.
Certainly, one of the most essential finance related lessons to teach kids is that they should always “pay themselves first.” This means that no matter what bills are due, it is important to set aside at least some amount for savings on a regular basis, because after all – your most important creditor is YOU.
By showing kids the importance of saving and the value of interest, coupled with a good understanding of risk versus reward, it is likely that they will carry these financial lessons throughout their entire lives.