Financial lessons are one of the most important lessons all parents must teach their teenage children. Kids often take money for granted, as they do not have any knowledge on where it comes from or the effort it takes to earn money. You can start by introducing your kids to piggybanks. This way they can see their savings grow. However, a piggybank cannot teach youngsters and teenagers all the important financial lessons required for managing personal finances.
Here are some important financial lessons to help teach your kids, the basics of money management and help them become self-sufficient adults.
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Budgeting is one of the first lessons in personal finance. It is important for parents to teach their kid’s financial restraint and restrict them spending all the money at once. Budgeting must be taught to teens early, so that when they enter professional life, they can stick to a budget, enjoy their earnings as well as save for the future.
Budget can be created for allowances, small earnings as well as pocket money earned by your kids. Kids do not understand hard work and the effort that goes into earning money and sometimes waste parent’s hard earned money. Introducing your kids to the world of budgeting, helps them understand the value of money. Budgeting alone cannot give the expected results. Teens must be able to track and manage their expenses in order to get the desired results. This can be done by noting down all expenses in a diary or an excel sheet. This will help manage finances in a better way and also nurture financial discipline.
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Teens must be taught the basics of banking and the way in which simple bank saving accounts work. When your kids grow into teens, you should open a savings bank account for them. Deposit pocket money in their savings accounts. In this way you can teach them some of the basic banking habits like withdrawing money through debit cards, online/ card swipe payments, how to check account balance, manage accounts online and so on. A bank account will also help children understand, bank fees and charges required for maintaining an account. Moreover, interest earned on deposits encourages children save money on a regular basis.
A credit card can be a great financial tool when handled responsibly. Teenagers must know how to handle a credit card, responsibly. Explain carefully each detail related to credit cards like the process of using a credit card, credit limit, interest rate, annual fees, credit card statements, billing process and charges and various credit cards offers. At this stage, make sure to explain how credit card debt can hurt credit scores and their usefulness in availing loans and the impact on personal finances.
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Parents must teach their kids the difference between good debt and bad debt. Once your child joins the professional world he/she may avail loans. Therefore, parents must explain what is debt and how to manage debts responsibly. You must also teach children the implications of what debt can lead to.
Teach your kids the importance of emergency funds. This tip comes after budgeting. Once your kids learn the art of budgeting, encourage them to save a part of their allowance (pocket money). Creating a contingency fund helps immensely during the teens. This trick will also help them enjoy a financially stable professional life.
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An important chapter parents must teach their kids along with budgeting is the setting of financial goals. Once they know the value of money and the effort it takes to earn, they will eventually understand that achieving dreams also requires financial planning. Teenagers have simple dreams like owning an electronic gadget or a bike. Allow them set their own financial goals and accomplish them by saving and investing. Achieving small goals helps them taste success and motivates them set bigger goals.
These are the ways you can instill basic financial habits and encourage children handle their money responsibly. Inculcating good financial habits in kids makes them strong and always keeps them well grounded, no matter how much they earn.
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