Like most things in life, good financial skills start in the home. Judging by Gen Y’s current economic woes — insurmountable debt and underemployment, just to name a couple — it is safe to assume that maybe they did not have the best financial examples available to them. They don’t teach this kind of stuff in school, and this generation grew up in the ultimate “buy now pay later” atmosphere that was not only emulated by their parents but by their leaders as well.
The fact is that you may have to teach your kids the proper ways to manage money, because quite frankly no one else is going to do it for them. Many of us graduate with at least $20,000 in student loan debt plus a couple of thousand on the credit card, and with no idea how to even make a simple budget. The worst part is, young people don’t have to learn these things the hard way. They just need some good examples – especially when it comes to managing credit!
1. Create an interest
Personal finance probably won’t be on the forefront of your kid’s mind. As a result, neither will credit cards. Create an interest early on by considering co-signing a credit card for your teenager. Before you freak out at this thought, keep in mind that you can put a cap on it so they don’t ruin their credit – or yours. You can start with something very low, like their allowance amount, and use the opportunity to teach them how credit cards work.
2. Teach them how credit works
As soon as your kid turns 18, they can sign any credit card agreement that is thrown at them. A few decades ago you would need a good job, savings, collateral, and maybe a first-born son in order to get your hands on a credit card. These days all you need is to be of legal age. As soon as your child sets foot on a university campus, they may be bombarded with credit card marketing even despite new laws that have been placed by several countries to limit this.
Before your child signs on the dotted line, make sure to teach them how credit actually works. Let them know that credit cards are one of the most expensive ways to borrow money, that your credit rating can determine whether you can purchase big items like a house in the future, and that they do have to pay off those cards in full.
3. Lead by example
Experience is the best teacher, and children imitate what they see. These habits can follow them into adulthood, so it’s important to make sure that you are leading by example. By cultivating your own healthy financial habits, you can show your kids the “dos and don’ts” of personal finance. Just a few simple steps can help your kids realize the value of money and how credit works. So…
- Pay your credit card in full every month.
- Avoid unnecessary spending sprees.
- Don’t take out 10 credit cards.
- Have your kids watch you pay the credit card bill (great teaching opportunity!)
- Create a simple budget and stick to it.
4. Encourage your kids to ask questions
Many times young adults just don’t even know who to ask when they have a personal finance question. They can try the internet, but that may lead to countless articles that contradict each other. Encourage them to ask you personal finance questions. They may hear some financial jargon on television commercials and marketing campaigns, so let them know they can always come to you if they are confused by their finances.
By starting early on, you can instill financial habits in your kids that will save them from lots of financial heartache later.
Image by Andres Rueda
