8 Vital Money Lessons to Teach Your Children

Teaching children and teenagers how to be responsible with money will give them lifelong rewards.  A smart attitude and approach to finances when one is young is the best indicator of long term financial intelligence.   We’ve broken down the most important pieces of a smart money outlook into eight vital lessons.  Kids and teenagers who master these lessons are on the absolute right track towards a bright financial future.

Kids & Money

1. “No matter how little money you make, pay yourself first.” The trick is to put your money into a savings account each and every time you get paid.  As you get older and your income increases, there are more options for saving in the short and long term; but when you are young, nothing beats a simple savings account at your local bank or credit union.  While the return on a simple savings account is typically quite modest (around 2-3% on average) the money is completely liquid – you can access it at any time without penalty.  Learn about the power of compound interest, which can help multiply the money you save the longer you save it.
2. “Avoid credit card debt.” The best way to get out of debt is to not get into debt in the first place. Explain to high school aged students that credit card companies often target college students with tempting offers for low rate credit cards or cheap incentive gifts.  Explain to them how credit card debt can easily get out of control, do the math together to demonstrate exactly how much your purchases actually cost with a credit card.
3. “Learn how to recognize scams.” There are many companies who prey on those who aren’t smart about money or people who are desperate.  Pawn shops, payday loans, rent-to-own companies, debt consolidation loans, home equity lines of credit – all of these are far more expensive in the long run than the benefits they provide in the short term.
4. “Make a budget and stick to it.” The simplest way to be smart about money is to make more than you spend every month.   The easiest way to do that is to make a monthly (or weekly, or even daily – whatever works best for you) budget and make sure you follow it.  Like good eating plans, a budget works best if it’s not too strict.  You’re more likely to splurge if you feel like you’ve been depriving yourself of all the good things in life.  Building a few treats into your budget –as long as they won’t break it- is a great way to stay motivated about being smart with money.  The satisfaction you’ll get knowing you haven’t splurged on anything you can’t afford will help keep you on track in the future.
5. “Be a smart consumer.” Before making a bigger purchase, do your homework.  Read lots of reviews, compare competing products, talk to friends who’ve made similar purchases – in other words, learn all you can about the product you want to buy.  Buying the cheapest item is not always the most economical choice, you want to make purchases that will last a long time.  Replacing a cheap object several times can be more expensive than purchasing a pricier but better constructed piece once.
6. “Learn how to negotiate.” When buying big ticket items, from appliances to vehicles to a home, learning how to haggle with the seller (especially when it comes to debt negotiation) is a skill which can save you a lot of money over the years.
7. “Protect your finances with sufficient insurance.” Cover your health, your home, your car and your life.   A surprise illness or accident can ruin everything you work for financially in a very short time.  Having proper and adequate coverage can give you peace of mind.
8. “Learn how to do more with less.” Life isn’t about the things we own or the material items we surround ourselves with.  The best things in life really are free, and can often be found right under your nose.  Learn how to appreciate what you have and you’ll be less likely to covet those things you think you want.

The very best lessons kids can learn are the ones they learn by seeing what their parents do. It’s always important to set the best example for your kids. “Do as I do,” should be your motto when trying to teach children. Often, it’s what they observe when we don’t think they’re watching that makes the most impact.

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This is a guest post from Master Your Card. You can check out the blog at http://masteryourcard.com/blog or you can subscribe to his RSS feed here.