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Teaching Your Children About Finances

By Jackie Edwards:

Learning to manage your money isn’t something they generally teach in schools. It is a life skill that many people only begin to understand when they move into a home of their own. In order to prepare your children for the challenges of managing money and the importance of being socially responsible with purchases and investments, start when they are young. A recent study done by the University of Arizona found that these early lessons contribute directly to their financial and personal wellbeing later in life. 

Thinking about purchases

A few dollars allowance might seem an indulgence, however it can really teach your children to be responsible and understand the consequences of their spending. It is important to give your children the freedom to spend their allowance as they wish, however, you should talk to your children about where the toys come from, how they are made, and the repercussions for the environment. For instance, 30,000 dolls that were manufactured in China were recently destroyed, because they contained high levels of phthalates. These are dangerous additives in plastic that linked with birth deformities and problems with language development. Ask your child if they would want that toy if the chemicals in the plastic were dangerous, or manufacturing processes affected the fish in the sea? Could they make a more responsible choice when deciding what to spend their money on? 

Learning about responsible lending

There are 189 million Americans with credit cards. In fact the average household debt is over $8,000. Using a credit card to fund purchases is a normal part of everyday life. However, you must always have the means to be able to pay a credit card back, or it can end up costing more. Perhaps your child has a toy that they really want that costs $10. Talk to them about the difference between borrowing money to pay for the toy, and having to pay not just the $10 back, but also paying interest, depending on how long you borrow the money for. Would they still want the toy if it cost $15? Learning about interest can help them to become responsible adults when it comes to borrowing money. 

Talking about financial difficulty

It is important to teach your children that you should ask for help if you have any financial difficulties. There is often a reasonable solution to sort out debt. Declaring bankruptcy can often be a good way of wiping the slate clean and it doesn’t always mean that you lose your assets. Discuss what you would do if you had to live on a limited budget following bankruptcy. With a little planning, you will still be able to afford the things you need for everyday living.  

Encouraging saving

Saving money and living a green lifestyle go hand in hand. You are ultimately trying to preserve what you have and create something better. Open a savings account with your children, preferably one that they can monitor independently. You can show them how by saving their allowance money, they can buy something better and even make interest. They could put that interest towards a charitable cause of their choice, helping to save the environment. 

Teaching your children the basics of finances will help them to navigate life easier as an adult. These early lessons about managing money, are essential to responsible spending. 

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