Financial missteps and poor credit choices can take time to mend, but some good can come of it as a parent; you can teach your children how not to make the same mistakes.
Teaching your kids about money will set them up for a lifetime of smart decisions. Here are some strategies for nurturing healthy money habits.
Planning a Budget
Show your children your budget. Taking your kids shopping with you is the perfect opportunity to explain what things cost, and why certain items don’t make it into the shopping cart. If you’ve allocated $150 for groceries, for instance, demonstrate how choosing on-sale items will let you get more for your money.
Paying off Debt
Explain how credit and interest works in terms your children can understand, using references like Experian and myFICO. Ensure they understand that credit card purchases must be paid back. Show them what a credit card statement looks like, specifically the box that explains how long it will take to pay off the balance using only minimum payments. Explain that you’re borrowing money, and the longer you take to pay it back, the more the price goes up.
Improving Poor Credit
While you don’t have to discuss every detail of your finances, you can educate your kids about poor decisions and their consequences. For example, you can explain how having a poor credit score—which you can tell them is like a money report card—prevents you from qualifying for a traditional loan or low interest rates. Be sure to let them know that healthy spending and good budgeting can help improve a credit score, as explained by Experian.
Even the youngest of children can understand the difference between needs and wants. Illustrate that even if you want something, sometimes you have to wait and save, or settle for an alternative. Take time to point out the sacrifices you make to pay off debt. For instance, you can explain that instead of going out for an expensive dinner to celebrate an anniversary, you cooked a special meal at home. Do you take on extra work sometimes to increase your income? This illustrates ways in which you can reach your financial goals.
From an early age, whenever they earn allowance or get monetary gifts, encourage kids to put a portion of it into savings. They can keep a physical piggy bank, or you can have them join you at the bank to make a deposit. Either way, watching their savings grow will motivate and empower them.
Money doesn’t have to be a taboo topic in your home, but remember to tread carefully. A reality check is effective, but be mindful about the language you use when teaching your kids about money. You don’t want your children to feel stress or worry about extreme situations. Explain that working together as a family and making small sacrifices will pay off in the long run.
By teaching your children to live within their means and get in the habit of savings, they’ll be better equipped to avoid credit troubles and financial difficulties as adults.