5 Ways to Instill Financial Responsibility in Children
One of the less talked about, but certainly understood, parents’ concern is, “will my child grow up to be financially responsible?” It’s a legitimate concern, and by incorporating a few money lessons early on in your child’s life, you may be able to better prepare them for a lifetime of financial responsibility and freedom. Below are five ways to teach your children good money habits that range from saving allowances and pocket change to approaching college funding with an actionable plan.
Start Teaching Money Values Early On
It’s never too early to discuss the importance of money (and saving it!) with your children. Just as you instill the importance of good manners and sharing with others, you should be discussing money values with your children as soon as they can understand the concept. Simple practices like teaching them that money doesn’t grow on trees will go a long way in their overall approach to money later on. Treat trips to the grocery store like minor money lessons; bring your child along with you and explain the prices of each thing you buy and the total cost of the bill, to instill in them that products and services you pay for have a price tag. This can drastically reduce their chances of impulse buying and irresponsible money habits later on.
Handle Allowances Responsibly
For many children, household chores are their first job, and allowances are their first paycheck. There is nothing wrong with handing your children allowances here and there, but the important distinction is that they understand they are earning their money. Instead of handing out allowances to your children for the sake of it, require that they complete a certain chore, do their homework on time for one week straight, or define another goal of their choosing to work towards. Whatever the goal is, there should be an incentive to do the work. This will instill in them that money has value and that you have to work towards it to receive it.
Suggest They Pick Up a Part-Time Job
One of the most effective ways to instill responsible money habits in your children? Suggest they pick up a part-time job during the school year and a full-time job during the summer. When they enter the workforce for the first time and have to work hard to earn their own money, it can be a very fulfilling and maturing experience for them. Now that they have to show up for work on time, spend long days scooping ice cream, stocking shelves or serving customers, they will truly understand the value of what they earn and be more inclined to be frugal when it comes to their own hard-earned money.
Let Them Make Mistakes
We’re not talking drastic, life-changing mistake here. But sometimes, the best way to instill financial responsibility in our children is to let them make mistakes and learn from them. This includes frivolous purchases they make that turn out to not be worth it, or a mistake they make like receiving a fine or a ticket. Instead of bailing them out when they make a financial mistake, having them pay for it themselves will teach them important lessons surrounding financial independence and ownership. One day, they won’t have anyone to bail them out of a financial mistake, and children shouldn’t have to wait until they are adults to learn that lesson.
Stress the Importance of Paying for College Responsibly
Perhaps this is the most significant lesson you can teach your children—the crucial necessity of college planning and preparation. College is exorbitantly expensive these days. After graduation, the average college debt is $29,900 in 2020 and 44.7 million Americans have the financial burden of student loans. Some colleges are an upwards of $50,000 a year for tuition—that’s over $200,000 total! Instead of allowing your children to strap themselves with student loan debt that exceeds some mortgages’ price, teach them the importance of beginning a college fund early on.
Whether this means placing all of their allowance or holiday money into a college savings account, or stowing a certain percentage of their paychecks to pay for room and board, there are ways to start college prep early on. In addition, reassure your children that they can receive a college education without their overall debts exceeding what they can realistically afford. Options like applying for scholarships, working a part-time job throughout college, or even going to community college can all be viable options for reducing college debt burden.
Learn More from Fiduciary Peter O’Neill at Fiduciam Wealth Planning
Financial responsibility can truly make or break the quality of your life, so why not teach your children worthwhile money habits early on? The team of financial planners at Fiduciam Wealth Planning hope you gained worthwhile insight from our five important steps for instilling financial responsibility in your children. To learn other ways to manage your finances responsibly, reach out to our Towson office today to speak to a dedicated fiduciary.