Would you trust your kids to manage your finances? You should.
1 in 5 children lacks financial literacy in America, a knowledge gap that promotes lower credit scores, higher debt, and a lower standard of living. Sound money management skills are one of the easiest ways to give young people a leg up in both their lives and careers.
So how can you make sure your children are financially savvy? Start by teaching them these seven skills.
Open (And Maintain) A Bank Account
Conventional wisdom holds that proper budgeting starts with a bank account. Even more important is keeping track of what funds you have available.
For example, Americans pay over 15 billion a year in overdraft fees! For someone just starting out these fees can make a huge difference in living situation.
Tip: Most banks allow minors to open an account as long as a guardian co-signs. Open one and help your child learn how to deposit and withdraw money.
Create (And Stick Too) a Budget
In many families talking about the budget is taboo. Unfortunately, this won’t give kids a very clear idea of the costs it takes to run a household. Opening up more about daily costs and expenses will set realistic expectations for budgeting down the road.
Tip: Teach your kids budgeting by having them work for an allowance, which will cover both recreation and some personal expenses.
Use the Kitchen
There’s a reason so many financial experts bring up the cost of eating out when trying to save money- Americans spend an average of $2,746 a year on restaurants! Cooking at home is faster, healthier, and costs half of what dining out runs.
Tip: Invite your child to start learning their way around the kitchen and trying their hand at cooking small meals.
Credit scores aren’t just for buying things- they’re also used in hiring decisions and housing approvals. Teenagers should understand the borrowing power of credit, how to build it up, and the ways to maintain it.
Tip: A credit score starts with basic information: a job, an address, and verifiable income. Once these are in place, your child can apply for a retailer credit card to begin building credit lines.
Rent an Apartment
A bad rental situation is a quick way to end up in trouble fast. Kids need to not only understand how to rent, but how to read a lease and how to avoid a bad living situation.
Tip: Review actual lease terms with your kid so they understand the penalties of breaking a lease, expenses associated with creating one, and repercussions of an irresponsible roommate.
Manage Credit Cards
If there’s one thing teenagers like more than borrowing your credit card, it’s getting their own. Offers for credit are found all over college campuses and can be a doorway to debt if not managed properly.
Tip: Scratch your teen’s credit itch by getting them a secured credit card, which they’ll then pay back to you.
How to Invest
65% Americans have nothing saved for retirement, which means no emergency funds and no end in sight when it comes to work. Teach your kids the basics of investing so that they feel comfortable putting money into a savings account, the stock market, or 401k.
Tip: Offer to deposit your child’s money into an investment (such as the stock market) where they can monitor the return. Bonus points for offering a parental match program.