Most financial expect agree that children have a basic understanding of money as early as three. And financial habit are mainly form by the age of seven. According to a study by University of Cambridge.
Yet with national debt at an all-time time high. The Average American household carrying over $15,000, in credit card debt and recent student loan debt ever, many parents lack comfidence when it comes to teaching their kids about money- at the time that financial education has become more important than ever.
Those parents that do teach their kid about money often teach then very basic and sometimes even useless Imformations.
But below will have put together what we can term the most significant thing every up growing kid need to know about money.
1. How to create money:
Surprising that the first thing some parents teach there kids about money is how to write a check, and later become surprise how money get lost from there account.
Earn income: is what employees make by exchanging their time for a paycheck. It is the hghest taxed income, has the least security. And is capped (you can only work so long and there are only so many hours in the day).
Passive income: is what investors and entrepreneurs make by finding cash-flowing investments or creating and selling a product, they make money even while they are sleeping. And they even use that money to make more money by finding more investments or funding new products it is the least taxed, has the most security because you are in control, and has no capital.
Teach your kids the value of making thoughtful purchases by allowing them to buy the luxuries they want. For example, keep food in the house for your kids to be able to pack their own lunches, but if they want to buy food at school. Then they pay for it themselves. It could save you money, help your kids to be thoughtful about what they spend their money on, and likely ensure they eat healthier foods than what the school provides.
Kids don’t usually understand the cost of things aside from stricker price, so it’s up to you to teach Your kids about less obvious (or even hidden costs) if your kids want to make a big purchase like an iPhone or a car, teach them about the added expenses of monthly data plans, insurance, repairs, etc.
When it comes to spending, your kids are going to make mistakes, and that’s okay! They will likely experience buyers remorse at some points and may turn to you for help, if this happens compassionately let them experience the consequences of their actions. Particularly if you warned them before they made the purchase. The pain they made now will help then make better choices when the stakes Are higher.
3. Teach them how there money got stolen by the government.
There are four wealth- stealing forces when it comes to money: taxes, debt, inflation, and retirement.
- The government uses taxes to take your money legally.
- The bank use credit cards to get you in debt.
- The central Banks uses inflation to lower the value of the money you have.
- And the banking industry uses mutual funds and 401(k)s to steal from you via fees under the quest of saving for retirement.
If your young one and children could understand the ways in which their money was stolen legally. They could be able to hold into more of it and take control of their financial future.
4. Teach them through allowance.
And allowance is one of the practical way to teach your children to manage their finances well. However you determine what your kids should earn, their allowance giving to them on a regular basis help them learn this management lessons rather than sparodic installements. When deciding howmuch your child should get for an allowance. There are few things to think about. There age, your family I’m come and what their allowance is meant to cover.
As soon as your kids start receiving allowance, teach then to budget by providing for them the breakdown of where there money goes. Percentages and categories will defers consider something along the lines.
- 40% allocated to spending.
- 40% allocated to saving.
- 10% allocated to charitable giving.
- 10% toward family taxes.
For younger kids, provide their allowance in small denominations for eazy allocation and save then into separate labeled clear jars or plastic bin so they can watch their money grow in each category.
5. Teach them the difference between liability and asset.
Simply put, an asset is anything that puts money into your pocket. A liability is anything that takes money out of your pocket.
This actually creates some counter intuitive thinking. For instance when we say “your house is not an asset” people get it very hard to accept, until when the housing market crashed. People found there house to be liability in the end of day. Why? They had overpaid and market made them upside down, the reality is that real estate housing is only an asset when it put