5 Important things to teach your children about debt & lending
Being a parent in the 21st century can be a tough nut to crack. Our children are growing up exposed to countless media channels, which means it is vital that we lay the groundwork for proper understanding of life skills such as financial planning, so they are able to make sound decisions despite the constant marketing onslaught.
The difference between needs & wants
Start with the basics. Teach them to differentiate between needs and wants. They need a school uniform, a book bag, stationary, etc. They want movie tickets, brand-name clothing, money to spend at the fair, data for their phones, etc. Sometimes you’ll find that a want could actually be a need, i.e. a fitness tracker that inspires them to move more, tells the time, keeps track of their sleeping habits, etc. Open the lines of communication and encourage dialogue in this regard. The more you chat about it, the easier it will become for a child to determine the difference.
How to live within their means
This is mainly a case of show, don’t tell. You can’t expect your children to be frugal with their money if you aren’t being so with yours. A good way to do so is to involve them in the monthly family budget. Get together around the table and plot out what needs to be bought and paid for throughout the month ahead. This way they will also develop an appreciation for where your income goes, and the choices they will have to make as adults.
To keep track of income & expenses
Once your kids have a basic understanding of what a budget is, you can ask them to help you keep track of income and expenses. Start small, with their own pocket money and how they spend it. Eventually, it can become a part of their chores (and math exercises!) to keep track of your receipts so you can tally up your household expenses at the end of the month.
Not all credit is bad credit
Discuss the notion of good debt and bad debt. Explain that taking out a loan to finance a house or to pay for education is something vastly different than doing so to cover day-to-day expenses or to cover credit card payments, for instance.
Save, save & save some more
Teach your children the value of compound interest by giving them the option of ‘investing’ some of their pocket money with you throughout the year at a very attractive interest rate. Then, when the December holidays roll around, you can pay out their dividends accordingly. This is a simple way to show them how satisfying and rewarding it can be to save your money diligently.
By laying the groundwork for wise financial decisions early in their lives, you will equip your children with the building blocks of a prosperous future. Keep an eye on the blog in coming weeks and months as we share more insider info on making your finances manageable. In the meantime, feel free to reach out to a Libertine Consultants representative if you would like more information regarding our debt services and credit services.
