6 Basic Financial Skills Every Kid Should Know Before Leaving Home
Are your kids fast-approaching the age when they are leaving your home? If so, you undoubtedly want them to be prepared for the real world. To get by in the adult world, your children need to know basic financial skills, such as setting a budget or how to pay off a credit card.
As their parent or guardian, it is your job to prepare them as best as you can. The more they know how to use their income in the best way, the more they can become independent and financially secure. Also, by teaching them well, you can avoid them calling you up every few years when they need financial help to get out of a tricky situation.
It is easy to underestimate how difficult it is to teach your children about finances. Many of the financial lessons which are second nature to you are new to your children. As a result, you may skip over important lessons or fail to adequately explain them to your child. When you are preparing to teach your children about finances, consider the following lessons.
1. Start Financial Understanding Early
The sooner you teach your kids financial skills, the better. You may think the best time to teach your kids financial skills is in their late teenage years, a little before they are ready to move out of the home.
However, it is better to start to teach your children financial skills from an early age, so they have a chance to learn basic financial concepts. They are then more likely to learn why those lessons are important and how to apply them when it is time to fly the nest and become completely independent.
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Firstly, you need to look at your own attitude towards money. Children tend to follow by example, as opposed to practicing what you preach. This is especially true when you are at odds with what you say and what you do. If you tell your children it is best not to squander money and tell them the importance of saving but you are constantly buying new phones, laptops and televisions at the drop of a hat, then they are more likely to follow your impulsive spending habits than to take note of your talks about saving.
2. Checking and Savings Accounts
One of the first financial skills to teach your children has to do with their bank accounts. It may sound incredibly simple but your children need to know:
- How to set up a bank account.
- How to check the balance of the account.
- How to withdraw money.
- How to make payments through the account.
Some young adults have only ever dealt with cash given to them by their parents or their part-time job and are clueless when it comes to understanding the basics of using a bank account. Your child needs to know how to read a bank statement. Whether this is through an online app or it is an old-fashioned paper statement, it is vital he or she knows how to read their bank statement correctly.
Open an account for your child at an early age, so the older he or she gets, the more you can teach what to look at on bank statements. This includes outgoings, incomings, interest and current balance. The more your child understands each component of the bank statement, the more in control he or she is of their money.
3. How to Create a Budget
You need to teach your kids about budgeting from an early age. You can teach this lesson by giving them an allowance. For example, explain to your children if they spend $5 of their allowance on candy, it will take them longer to save up for the game console they want.
Budgets can become more complicated the older one gets, as there are things like mortgages and savings plans to navigate. For children who just left home, they only need to worry about the basics. The more they can plan how to spend their incomes correctly from the offset, the more they can manage their money later in life.
4. Have a Savings for Emergencies
Knowing how to save for an emergency situation is another vital skill. Your children may think they can always rely on you, their parents, to bail them out in times of trouble, but they need to become independent and deal with their finances themselves. Putting away a little money each month for emergency situations is a skill everyone must learn and master early on.
5. Understanding What Credit Is and How Credit Cards Work
Lenders tend to target young adults who have little experience with money by getting them to sign up to credit card and loan offers. Kids need to understand credit offers before they sign on the dotted line. Teach your kids how to comprehend basic agreements and terms and conditions for credit cards, debit cards and loans so they know exactly what each deal entails and whether it makes sense to sign up. Most importantly, teach them to identify when a deal seems too good to be true.
Building a positive credit history is also vital, but it is something youngsters often overlook because they do not have to worry too much about their credit score in their first year or two of leaving home. It does not take long before credit scores make a huge difference to what your children can do financially, so they need to know how to achieve a good credit history from the offset.
6. Do Not Be Afraid to Ask for Help
If you are a youngster who has recently left home and your parents or guardians have not taught you financial skills or if you are a parent who does not possess financial skills yourself, you can always ask for help. If you are starting to struggle financially, you also need to ask for assistance.
Financial problems do not go away if you bury your head in the sand, so ask a professional for guidance. There are plenty of free financial services available to get you on the right track.
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- 401(k) Plans
- Credit Cards
- Credit Scores
- Debt Help
- Financial Planning
- Getting Started with Financial Planning
- Personal Finance
- Perspectives for Families
- Retirement Well
- Saving and Budgeting
- Social Security Benefits
- Tips for Tracking and Saving Money