While you may feel that you are better off than your parents, and I hope you do, our kids will have a definitely more difficult time making this statement. Much has changed. Our national economy has been impacted by a number of things, a war, not yet concluded; much increased fuel prices with expectations they will continue to rise, lower job creation, and increased competition globally. While we as Americans have had a much lower savings rate than most of the rest of the world, we are now in the realm of having a negative savings rate. Retirement benefits have decreased, and health care costs have risen. Social Security in all probability will not be around in the way we know it today, for our children. With all these factors that impact wealth creation, what can we do to ensure that our kids have a fair chance at being better off?
While some things are outside of our individual control, there are some areas where we can direct and guide our kids of all ages.
Understand money. Help your kids really understand money. Online payments, debit cards, credit cards and check books, may give children the impression that there is an unending supply of money. Teach your children that these are payment tools, and that you have to earn the money and have it in the bank, before you can use them. Help them understand interest rates and the cost of money. Help them understand how much money you make, and how it is spent. This will give children a good idea of the cost of living and also make indelible the fact that they will need to start saving early.
Wean yourself off of credit cards. There is no better education than the one observed. If your children observe your saving habits and not using credit cards and payday loans for regular expense items, they will be more likely to prevent the credit monkey from climbing on their backs.
Start saving now. Mandate that 10-25% of all the money that comes through your children’s hands be saved. During a regular year, kids rack up money from allowances, jobs – part-time or full-time, gifts, contest winnings, etc. Saving a percentage on a consistent basis is a good life lesson. Help your child monitor the growth of their savings, and eventually move those savings into investments. Having a real savings goal helps this process, for younger kids it may be some toy or electronic purchase, for older kids, it may be spending money on a trip, or even a partial payment on a car, for young adults, among other things it will be saving for retirement. Savings also means looking for bargains on the items that must be purchased.
Learn to budget. Introduce your children to budgeting as early as possible, but it is never too late to implement this most important wealth building tool. Also referred to as a spending plan, a budget simply puts you in control of your money so that you spend your money on the most important things to you and avoid frittering it away on impulse items. Help them create written budgets and set up a regular monitoring process. A budget must be written down and followed to be useful. Budgets in your head are not reliable.
Help your children understand that a budget is a dynamic document as income and expenses change. Help them understand the power of directing their money where they want it to go, to what is really important to them, and not frivolous impulse purchase that often generate buyer’s remorse.
Help them understand that the celebrity lifestyle that is conveyed unendingly on television and in magazines apply to a very small part of American society. Understanding that trying to rival the designer shoes or purses in a celebrity’s closet on a non-celebrity’s budget, will almost certainly lead to financial ruin, or at the very least the inability to obtain some things that may be higher on their personal goal list.
Keep good records. Along with budgeting, good record keeping is important. Learning to do this at an early age, will keep this habit throughout life. Good budget records show where you are overspending and allow you to make changes. Later on good record keeping will help you make sure you are able to claim all the tax-deductions legally allowed. Good records are also key when you have to make credit card or other purchase disputes.
Learn to give back. Being better off doesn’t begin and end with money, helping your kids learn to help ones less privileged than themselves at all levels, this is one way to fill their lives with meaning.
Get as much education as possible. Gone are the days of working a lifetime in one company. Investing in education throughout their life-time will keep your child ahead of the trends and be able to participate in the workforce as changes occur.
Get a career in an area that will support their desired lifestyle. Help your child examine the lifestyle that they may want to lead and guide them towards jobs and careers that can make that happen, based on the remuneration available for those jobs. Help them connect with people who are currently in similar jobs to determine whether salary or income expectations are valid.
As parents our job on guiding our children in financial matters really never ends, but if we start teaching them about money when they are young, the skills will be a lifelong asset. If your kids are teenagers or young adults and you fear that you may not have done a good job of guiding them, remember it is never too late to start.
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