If you are like many parents, you may look at the stack of bills on your desk and hope your children will not face the same challenges you do. By helping your children understand money and the challenges of debt now, you can help them make wise choices later in life. Here is some advice for speaking with your children about budgeting and preventing debt problems.
- look for new ways to live within your means
- talk about your choices
- get more in-depth with teens
- get teens participating in budgeting
- teach kids about interest
- argue with your spouse about money
- hand out endless cash
- discount allowances
- neglect teaching about long-term goals
- ignore the fluff…marshmallow fluff
Look for new ways to live within your means. Actions speak louder than words, so start by taking simple steps to show kids how to live within your (and their) means. It may mean carrying a water bottle while running errands instead of buying a fast-food drink, cooking in instead of dining out, or playing in the park instead of hitting the movie theater.
If you make a few simple changes to keep costs under control, talk about those choices with your kids. It doesn’t have to be a major conversation, and it’s not hard to explain how much money something costs and what you are saving. Build relationships while building financial well-being.
With teens in the family, talk about how you make financial decisions. Don't worry them about whether you can pay the bills, but let them know money does not flow freely. Sharing the decision-making process of choosing whether to take a week's vacation or buy a 55-inch HD television – or forego both to pay the orthodontist – can give kids a clear picture for their future.
Consider delegating a household task – perhaps maintaining the lawn mower or a car, or preparing meals – to teens, with a budget. As part of the household, they will be responsible for managing the budget and paying for necessary items or repairs. The task will give them a sense of additional responsibility, teach money management and prepare them for independent life in a few years.
Interest can work positively (savings) and negatively (loans). Help children open a savings account. Explain how compound interest works, and show them how their saved money grows. Or, if they want to borrow money to buy a toy or other item, offer to lend it to them, with interest. Explain the consequences. For example, borrowing $200 to purchase a video game system at 10 percent interest, and paying it back over 12 months, results in paying an extra $11, or 5 percent more, for the system.
Finances are one of the leading issues in divorce and marital stress. Ideally, couples will learn the importance of discussing finances regularly, creating and using a simple budget, and working out issues. Arguing about money is not good for couples. But when you think about what it is teaching your children, it may be easier to modify your ways.
If you give kids money every time they ask, there’s a good chance they will just continue to spend long into adulthood – and rack up debt. Learn to say no and stick to it.
Giving children a way to earn money (whether via a job, household chores or other system) can give them the opportunity to make some spending decisions while they are young. They can learn from their mistakes while the consequences are still harmless. Children age 6 and up are old enough to learn how to handle money.
If your child wants something, talk with him or her about how the small toy or candy bar he buys today will slow down his progress toward being able to buy a new video game later. As they grow older, you can help them understand that they might not get as much pleasure out of a quick purchase – like a stack of video games – as they will get from saving longer for a significant buy, such as their own car.
Conducted in the 1960s, with research ongoing today, the “marshmallow study” asked 4-year-olds to sit alone in a room with a marshmallow. They could eat the marshmallow immediately, or if they resisted eating the marshmallow until the researcher returned, they could have two marshmallows instead of one. Over the years, research has shown that the children who resisted the longest – who had the most self-control – were the most successful later in life. Teaching kids how to plan ahead, and exercise self-control when it comes to money, will pay off in a lifetime not clogged with debt.
Teaching kids about money and debt will have a profound effect on their futures in virtually every area of life. Taking the time to model responsible choices, discuss the realities of debt and focus on the bigger picture will help children build healthy relationships with money and debt.