Have you talked with your child about money?
If you’re wondering how to teach your children to better handle their money, the internet is full of tips, such as budgeting their allowance, saving their ice cream money for a big toy instead, discussing charitable giving and letting them learn the hard way from their bad choices.
But precisely why you should teach your children to better handle their money is perhaps the more important question. So, let’s explore several of the most logical reasons.
If you don’t teach them, they won’t learn.
In his book, “Allowances: Dollars and Sense,” financial planner Paul Lermitte lists six dangers that can result when parents don’t teach their kids healthy habits and attitudes about money:
1. Your kids could become financially irresponsible, have poor money skills, become deeply in debt, and/or remain financially dependent on you.
2. Your kids could develop a destructive relationship with money, equating it with self-worth or becoming addicted to possessions. They may believe that their happiness depends on having all the latest gadgets and toys.
3. Your kids could become victims of paralyzing credit card debt and have no understanding of how to set financial goals, save money for the future, budget, or be a wise consumer.
4. Your kids could lack the confidence to make sound financial decisions, which could affect other parts of their lives.
5. In spite of your good intentions, you could inadvertently teach your kids the wrong values about money.
6. Families are often torn apart by financial disputes. You need strong principles and a plan of action to avoid the tension and arguments over money that can destroy family relationships.
These may sound like worst-case scenarios, but remember: as adults, problems with money can almost certainly exacerbate whatever other problems your children are facing.
That said, teaching your children how to deal with money gives them an advantage in life. Not only will they understand how to use, save and invest money, they can enjoy more personal responsibility and confidence and they’re more likely to avoid debt and the problems that accompany it.
If you don’t teach them, they won’t learn correctly.
You probably know that if you write a check, certain information has to go in each blank on that check. If the check is written incorrectly, the funds won’t transfer from your account to the account of the check recipient, and then you will end up paying an extra fee for the failed transaction.
But think about it from your child’s perspective. Children can learn by watching, but how often do they get to see you write a check? If you do most of your financial transactions electronically – either online or with debit or credit cards – they may not pick it up organically. Children can also learn if you take the time to teach them, but if you don’t typically write checks, it may never occur to you to teach your child how to do it either.
The same principle extends to all aspects of handling your money. Do you maintain a budget? How much money do you make? How much of that do you pay for necessities? How much do you save? How much you give to charitable organizations? How much do you spend on things you want?
The key: Be transparent with your children. It may be easier to pay the bills and handle all your financial transactions either electronically or after they’ve gone to bed, but letting them in on the process teaches them what they’ll need to do with their money.
If you don’t teach them, someone else will – and that someone may not have your child’s best interests in mind.
Now, it may not be anything sinister – perhaps just advertisements encouraging an impulse buy on the latest action figure – but a study from the University of Cambridge found that money habits in children are formed by the time they’re 7 years old. In other words, if your child is learning to regularly indulge in impulse buys, those behaviors can last into adulthood. And, as adults, the impulse buys are likely to be significantly more expensive than that action figure.
Then again, it may be someone sinister looking to scam a child, counting on their willingness to give their money to those in need. Or it could be someone who merely has different values about how to prioritize saving, spending and investing money, and the lessons would differ from yours.
Ultimately, it all boils down to two major messages: It’s important to teach your children how to manage their money and giving them firsthand experience can dramatically change their outlook for future financial success.
City Bank offers savings and checking accounts specifically designed for minors. The savings account’s interest shows how they can make more money on top of what they save. The checking account is a joint account with a parent or legal guardian, allowing them some financial freedom and you the opportunity to oversee their choices.
Teaching your children to be financially responsible takes time, and the process can be frustrating. But for children to be able to manage their money as adults, they need you to teach them early on.Call us at 800-687-2265 to speak to a Customer Xperience Representative about available minor bank account options or open an account online here.