Money management skills are among those things that are so important and will serve you well throughout your entire life. And the thing is that it's not something you are taught in school and a lot of adults reach maturity without having this precious skill, which can really hurt you in the long-run. That's why it's good to talk to your children about money as soon as possible and start teaching them the important lessons. Here are 5 that they should be exposed to early on.
1. Avoid Debt As Much As You Can
Let's start with something fairly obvious - debt should almost always be avoided, unless it's a calculated risk you are taking or it's entirely necessary and you've got no other options. Some examples of understandable debt most people have are student loans, or a mortgage, car payments, etc. Those are unavoidable and the payment in instalments allows you to afford very large long-term expenses, such as a home, or an education. Speaking of which, teaching them about student finance can also be a good lesson for them - check out GOV.uk for the details.
Of course, then there's the "bad" debt: credit card debt because of frivolous purchases, unpaid payday loans, etc. These should be avoided at all cost because they come with a high interest rate and push you further into debt. You can avoid them by living within your means, which is another important lesson we will discuss.
2. Always Have Emergency Savings
The importance of savings isn't always properly drilled into our kids, but don't make that same mistake with your little ones. They should understand the importance of saving, in general, but also of different types of savings, especially emergency ones.
Emergency situations will occur at different times in their lives, and it's always good to be prepared for whatever may come. If you instill in them the habit of saving, they will go on to keep this habit into adulthood and when they have their own family. It might save them a lot of trouble.
3. Start Saving For Retirement Early
And speaking of savings, retirement is one of the biggest things you will be saving for in your lifetime, and the smart way to do it is to start as early as possible. Experts recommend starting as early as 20, if possible, in order to give you the most amount of time to save money and to make it the most affordable. The longer you wait to start saving, the more you will need to put away each month.
4. Live Within Your Means
Perhaps the most important lesson of all, when it comes to money, is to make sure to always live within your means. Most financial problems and debt stem from poor planning and a lack of awareness or responsibility regarding money. The concept is simple enough - figure out what you can afford and then don't spend more than that. But we all know it's not that simple.
What will help tremendously, though, is to know how to devise a budget and then stick to it. Budgeting can become second nature, if you're taught how to do it properly, but nowadays, budgeting apps are also very popular and useful tools to have, especially if it helps your child respond with more interest to issues of money management. The Guardian has a good break-down of the most popular budgeting apps your teen could use to stay on top of his or her finances. Otherwise, budgeting calculators are always good, and Citizens Advice can help with that.
5. Prioritise Your Expenses And Don't Impulse Spend
Impulse control is difficult even for adults, so asking a kid to stop themselves from reaching for every shiny, new thing is a tall order. But if you teach them the importance of prioritising expenses and not giving in to impulses, you will be setting them up for life.
For young children, especially, it helps to show them this lesson practically. You have £100 and take them shopping for 15 items that are necessities. That doesn't leave a lot of money for useless trinkets. If you do choose to spend on things you want, instead of things you need, you will then go without the necessary items, because you have no money left.
As you can see, money lessons are essentials, because they help you over the course of your entire life. These important teachable moments must take place now, in order for them to step into adulthood the right way. If you found this useful, you might also be interested in How To Cut Your Household's Food Bill In Half.