Parents assume the responsibility of teaching their children everything necessary to make them happy and fulfilled adults. While lessons about kindness and empathy usually take the forefront, parents should never forget to teach their children about financial health — which can make or break success and wellness throughout a person’s life.
Whether you are already a parent, planning to become one or are merely a product of a few, you should learn what you should be teaching the next generation. Here are a few critical financial lessons that you might need to master before you pass them on to young people in your life.
Live Below Your Means
“Live below your means” is one of the most fundamental financial lessons that adults need to drill into the younger generation. It is so important to avoid spending more than you make that it is a lesson worth teaching in school — though schools should increase their financial literacy training more in general. The main message of “live below your means” is prioritizing saving over spending and avoiding taking on more debt than can be paid off in a reasonable time frame.
U.S. consumer debt has reached crisis levels because too many Americans are relying too heavily on credit and loans to prop up unsustainable standards of living. Admittedly, living below one’s means isn’t a viable solution for many Americans who simply do not earn a living wage; yet, it is possible both to support improvements to social programs and increases in the minimum wage and encourage living below one’s means. Both help to create strong, financially stable individuals and safe, happy communities.
Living below your means is something you must model, rather than teach. You should avoid taking on more debt than you can handle, and you should opt not to buy something without first considering whether you can safely afford it. Kids will develop a similar financial outlook by mirroring your behavior.
It is fine to encourage kids to enjoy their childhoods, but they should know that there is no such thing as starting one’s financial journey too early. In fact, in many cases, opting to open a savings account, especially a retirement account, earlier in life is exceedingly advantageous, ensuring that money will grow and add value to the child’s future life. Plus, it is much easier to accrue savings when one lacks high expenses, like rent, utilities and healthcare, so it is especially beneficial to begin saving at least in adolescence.
Parents and kids might work together to develop savings goals and plans to achieve them. At first, smaller savings goals might be advantageous; they will provide more immediate payoff, showing kids that saving can be a useful practice.
Budgeting is a critical element of smart money management. Without a budget to guide your spending and saving, you are essentially guessing about your financial security, hoping that each expenditure won’t put you beyond your means. An effective budget will keep your household out of debt and help you plan for the future.
Building a budget isn’t easy, and rarely are budgets perfect on the first draft. What’s more, budgets require constant tinkering to ensure they are adequately meeting financial needs and goals. It is important to remember that not all budgets look the same; you might make a comfortable income that requires broad categorization of expenses to prevent financial hardship, but someone with tighter margins in their cash flow might require a more specific budget, with detailed categories to inform spending and saving.
Not only should you use budgets, demonstrating their value to your kids, but you should work with your kids to develop budgets for their spending and savings goals. You might take advantage of budget maker tools available online to make the process easier and more enjoyable for everyone.
The first step toward teaching financial literacy is becoming financially literate yourself. Once you have gained solid financial footing and accrued a wealth of money management knowledge, you should start communicating them to the next generation. Regardless of what your child’s aspirations are, they will need to understand what it takes to achieve financial health, so by prioritizing financial lessons, you will ensure your kid great life success.