The following is a guest post…
Children are not born understanding the concept of money; it’s up to us to teach them. Parents and other adults in a child’s life make lasting impressions that influence everything the child will encounter in his or her life. Understanding money is a major key to their success or failure, so to give your children the best chance at success, be sure they understand the four following concepts.
Why and How Budgeting Works
If you don’t know where your money goes, it just dribbles away, but you can control it by telling it what to do. It may sound silly, but if you don’t plan on what to use your money for before you start spending, you may find yourself without enough to do what you want. It’s not hard to decide to put part of it into savings. You can plan on spending part of it on junk if you want to, but making a plan then sticking to it keeps you from spending it on things you will wish you hadn’t.
The Unexpected Always Happens
One thing children don’t understand about money, is that when things come up or emergencies happen, you often need money to fix these problems. They also may not realize that if you haven’t saved your money, it will be difficult to get out of a bind like this. A child with an allowance should be responsible for buying gifts for friends or other minor expenses. Teach your kids: You won’t have money to buy or do things that you need or want unless you have saved it. The bicycle tire will develop a hole, a friend will have a birthday and you will need a gift. You are responsible for having the money when these things happen.
Borrowing Money Means Using Someone Else’s Money
Explain to your kids: some people and businesses will loan you money. That does not mean they give it to you. It still belongs to them and you must give it back as soon as possible. You’ll be obliged to pay them for the privilege of using their money since they won’t have the use of it as long as you still have it. Experts at El Paso Power Finance suggest that parents teach their kids (especially teens and young adults) about loans, and the importance of paying a loan back in a timely manner.
The Power of Interest
The most important thing to teach your kids about interest is that it works both ways: when you put money into a savings account, it works for you. When you borrow money, it works against you. Decide which you would rather happen. You can pay someone to use their money or they can pay you to use your own. This may be a difficult concept for younger children, but many people don’t learn about interest until they are young adults, and this can get them in trouble.
Teaching your children is easier, of course, if you understand money yourself. If you have trouble with any of these areas, study up and get yourself in shape first. All of these concepts can be broken down and explained even to little children, and will definitely prepare them for dealing with money as they grow up. The most important thing is to talk about money. The future of your children depend on it!