As parents, there’s so many things we need to teach our children. How to manage money is definitely one of those things. Learning how to be fiscally responsible is an important life lesson for every child. The money management skills we teach our children will define how they handle money, view money, and use their money. As you begin to think about funding your child’s college education, teaching these important money lessons should be one of the first places to start. Children who have a healthy relationship with money early on will understand the significance of the choices they’re making as college decisions get closer.
Your Own Relationship with Money
Before teaching your children about money, it’s necessary to pause and reflect about your own relationship with money. Are you someone who plans and saves, or buys on credit? Do you think about your future expenses, retirement, or plan for unexpected events? Does your family operate off a budget and have open discussions about money? These are just a few questions to ask before you begin to teach someone else about finances. Our relationships with money can be complicated – and it’s critical that we understand how we look at our financial picture.
When families begin to add a college education to the mix, it’s easy to feel like the decision is emotional and not based on a financial foundation plan. Instead, here are five lessons that you can share with your children to help them (and maybe you) become smarter about money. These lessons will assist you to build a strong foundation so when it’s time to make financial decisions about your child’s future, everyone involved feels educated and aware of the choices they’re making.
5 Money Lessons to Teach Your Children
Budgeting can be difficult, especially if it’s not something you’re used to doing regularly. People who use debt as a way of paying for everyday or exceptional expenses often find themselves in a downward spiral as interest builds. For many people, that debt continues to build until it’s almost impossible to stay above water. Teach children from an early age about what a budget is and how to use it. Encourage them to save a little bit of their allowance or gift money, and put the rest towards current purchases. This small habit early on can be life changing.
Even from a young age, there should be a clear connection about earning money and the ability to make purchases. Try to avoid simply buying everything for your child. Instead, look for ways they could earn money to make the purchases themselves. Combined with traditional chores, your child will be learning the value of hard work and expectations for adulthood.
Many young people do not have an understanding of how to use debt to achieve goals. Instead, they use credit cards or personal/student loans to pay for their expenses, resulting in a heavy financial burden. This kind of debt can take years to overcome. Work with your child to understand the meaning of debt. If a child is interested in a larger purchase, consider acting as the “bank”. Setup a loan and require payments back (with interest!) as an important lesson in money management.
Needs vs. Wants
Another valuable lesson to teach your children is the difference between “needs” and “wants”. For financial health, there must be a balance between the two. For example, spending all of your money on a sports car and saving nothing for college isn’t the best way to start your adult years. Even early on your children can understand that not every time you want something, you buy it. In fact, learning how to balance needs and wants early on will help create a more positive attitude towards money.
Understand that College Costs Money
As your child gets closer to college age, begin having talks about what funding college really looks like. They need to understand that college comes at a cost. Have discussions with your child all through the school years about college costs, financial aid, student loans, and look ahead to make sure that the income potential exceeds the investment requirements. Helping your child understand the seriousness of the investment they’re making can be an important financial tool.
By teaching your child to become more financially literate, you are giving them foundational tools they will use the rest of their life. Learning money skills early on will help create useful discussions for your family when big decisions come – like where to go to college and how to pay for it. Children who possess lifelong money skills are better prepared to make sound financial choices when it comes to their college education. So, passing on these skills is a must!
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CFAA helps with the financial aid process, from completing the FAFSA and completing the CSS Profile to reviewing the SAR, responding to requests for verification, comparing financial aid offers and understanding student loan options. Schedule a CFAA new client free strategy session or a 15 Minute Power Chat to learn more about finding ways to pay for college. To get the latest financial aid information and college application to-do lists, look for my bi-weekly JustAskJodi emails and check out my monthly CFAA e-newsletter.