Of all the things we need to teach our children so that they can successfully enter adulthood, managing money is something we often overlook. But money is something that will dominant their thinking as they enter adulthood. After all, don’t you spend a good bit of your time thinking (and worrying!) about money? Here are six basic truths to help your children become great money managers.
A cornerstone of building a sound financial future for your teen-ager is to teach them how to save and manage money. Sounds easy, but many adults don’t know how. And probably because no one ever taught them!
There are six basic truths of being good money stewards:
Many of these lessons will pay dividends for the rest of their lives. If your teens learn them well, they will enjoy a happier adulthood…and so will you!
Save for a Goal
First, encourage them to save for a goal. Suppose your child wants a $100 pair of shoes. Let them save $5 or $10 a week until they save a respectable percentage of the purchase price. Have them put reminders of their goal in strategic places. They’ll learn patience and persistence. And by the time they save the money, they might also learn about how fleeting desires can be.
Pay Yourself First
Second, the teen years are also a good time to teach the discipline of “paying yourself first.” That means learning the discipline of setting aside part of their income for savings before spending anything. The teen years are a perfect time to learn this lesson, and it is a great habit that will pay big dividends for their entire lives.
Balancing Act
Third, your teen needs to know how to balance a checkbook, even if he or she doesn’t have a checkbook yet. It is the concept of a balanced checkbook that matters. A balanced checkbook lets your teen-agers know how much money they have (or how much they don’t have!). If you don’t know how much you have, you can run out of money! Balancing a checkbook is a wonderful way to teach them that there are penalties if you spend money that you don’t have.
The alternative is to let them learn to keep spending until they’ve
reached their credit limit. And that mistake has created serious trouble for millions of people.
PC software makes balancing a checkbook easy. But make sure that they don’t just enter numbers and let the software do all the work. They need to understand the basics. You put money in. You write checks to take money out. What’s left is the balance.
Investing vs. Debt
Fourth, young people need to learn basic investment truths. It’s really essential for modern life. Teach them that stocks represent ownership in a company, and bonds are like an IOU. Introduce them to CDs, money market and mutual funds. Perhaps you’ll want to subscribe to Money magazine and discuss the articles with them.
Don’t forget to teach them how risks and rewards work. They need to know that a big return will include a big risk. It’s surprising how many people think that they can get huge returns without taking any risk. That’s a good way to lose money.
Teach your teen about the beauty of compound interest and that money will double every seven years if it earns 10%. That means that $1 they don’t spend on a soda today will be worth $128 when they’re in their 60s. Compound interest is the secret ingredient of building wealth.
Conversely, they need to learn the risk of compounding debt. Teach them that credit cards are set up so that they keep making payments each month without ever paying off the debt. In fact, if they pay the minimum due on a charge card each month, it’s just like doubling the price of everything they buy!
What Things Cost
Fifth, teach them what things cost. Some families share budget information with their teens. Others prefer to keep that private, but it is important that kids learn how expensive it can be to live at even the most basic level. Send your teen on a pretend “first apartment” hunt. Have them walk through all the costs of setting up an apartment, including rent, utilities and food. It will be a real eye opener for them.
God’s Stewards
Sixth and finally, teach them that they are stewards of God’s resources. This includes financial resources, and it is our primary motivation in being financially smart. We don’t want to waste what God has entrusted to us. Aso, because our money belongs to God, we should hold it loosely and be willing to use it for His purposes. Teach your children to have generous hearts and to look for opportunities to help others who really need it. Your children should also learn the discipline of giving to God’s church.
Many of these lessons will pay dividends for the rest of their lives. If your teens learn them well, they will enjoy a happier adulthood…and so will you! Who knows, they may be so rich someday that they will be able to buy you that house on the lake you’ve always wanted.
Gary Foreman is a father who currently edits The Dollar Stretcher Web site at www.stretcher.com. You’ll find hundreds of free articles to help save you time and money. Visit today!
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