Teaching your children about financial management

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Many parents would be surprised to discover that financial management skills are rarely part of the high school curriculum. From learning basic terms and developing a financial vocabulary to being able to identify the best savings and investment opportunities, teaching children how to manage their money will allow them to grow into more financially-responsible adults. Allowing children to grow up without providing them with a financial education could be nothing short of disastrous. A solid understanding of financial management is a strong foundation, one that can lead to a brighter and more secure future.

Financial concepts

The world of finance has its own vocabulary. From principle and compound interest to premiums and dividends, teaching basic financial concepts is the first step towards learning good financial management skills. When it comes to building a financial vocabulary, it is often best to start off slowly and then build on previous lessons over time. Parents may also wish to provide their child with an allowance, one that can be useful for demonstrating some of the more abstract financial concepts in a way their kids will more readily understand.

Basic budgeting

While an effective budget is the cornerstone of personal finance, there is no shortage of adults who have yet to master this skill. Teaching teens, and especially younger kids, how to budget their finances can be especially challenging as they often have limited income and few expenses. Using the household budget as a starting point can often be helpful and parents may wish to invite their kids to observe or even participate they next time they draw up a monthly budget or assess the current state of their bills and other accounts.

Savings and investments

Learning how to save money is also essential and is often a concept that is much easier to teach. Encouraging children to reserve a portion of their allowance can be very instructive, especially if there is a large purchase or other financial goal that they are enthusiastic about. Parents may also choose to open a savings account for their children, one that can provide them with first-hand experience. Purchasing a long-term savings bond or games that involve buying and selling stocks and other investments on paper without using actual money may also prove to be very educational. Learning about different types of income and experimenting with different investment strategies may have lasting benefits.

Putting it into practice

Abstract theory and basic concepts are all very important, but there is no substitute for real-world experience. Missteps and oversights can often be very instructional and such lessons are best learned early on while the stakes are still relatively low. While many parents find it difficult to watch their children loose money due to early mistake, giving children a modest sum to manage or letting them take charge of their own savings and income is often an essential step in the process. Children who grow up with no experience making financial decisions can quickly find themselves overwhelmed due to their lack of skills and understanding.