6 Financial Truths Your Kids Should Learn from You

It’s very rare for a school to offer financial courses, let alone require them. Although there are strong benefits from children having the opportunity to learn both at school and at home, the responsibility usually lies squarely on the shoulders of parents. Unfortunately, family financing is not commonly discussed in most households.

On money matters, parents may sometimes say they’re tight on cash, or that they’re saving, but if a family budget happens to exist, it’s not something kids are exposed to. As a whole, Canadians now owe $1.57 trillion, a figure that works out to more than $20,000 per person. Debts are climbing across the board, and the behaviors that have caused this are being installed as normal in today’s generation.

Debts are climbing across the board, and the behaviors that have caused this are being instilled as normal in today’s generation. In the USA,  as of 2013, average American is more than $225,000 in debt with many having less than $500 in savings.

We shouldn’t let the situation worsen further. We should make tomorrow’s citizens aware of the best practices of financial management.

So, kids must know how to handle money, and these six truths should be the core of those teachings.

1. Saving takes Precedence

The very first thing a person should do when money comes in is to siphon off savings from the top. Starting from a young age, 10-15% is adequate, and it should be split between emergency savings and retirement funds.

This money should be considered untouchable unless there’s an emergency. Additional savings pools should be set up for upcoming expenses like cars or vacations.

2. Investing Even Small Amounts Matters

CBC News Canada spoke with Manitoba high school finance teacher Kyle Prevost about the lack of general fiscal education in schools. His school is one of the few that offers money-related courses while other districts hope that working financial lessons into other coursework is enough. Prevost says that he teaches the kids that they can be millionaires by the time they’re 50 years old if they only invest the equivalent of a pack of cigarettes each day.

Prevost says that he teaches the kids that they can be millionaires by the time they’re 50 years old if they only invest the equivalent of a pack of cigarettes each day.

(Related – Become rich by saving one hour of wage every day)

3. Useless Debt Can Sink You

The country as a whole seems to have little restraint when spending unearned money. Some students are using their school loans for trips and fun events, but the debt lingers on for years. General consumer debt is up but 2% over the past year, though seniors have jumped 4.9%.

People take on a little bit of debt here and there, expecting to pay it off, but they have trouble whittling it away after interest. When mortgage renewals come up, and interest rates climb, those manageable payments on credit are no longer easy to make.

4. Not All Debt is Bad

It’s also important to note that not all debts are bad. Things like mortgages and auto loans are par for the course and are perfectly healthy. Moreover, they tend to have significantly lower interest rates, and positively impact credit scores. Student loans are also worthwhile, provided the funds go directly to academic costs.

5. Every Penny Earned Counts

From a young age, children can comprehend the concept of working for money. Over time, they can understand the concept of delayed gratification, and save for the things they want. Whenever possible, children should be given the opportunity to earn their pocket money, rather than having it handed to them.

As they progress through high school and college, even weekend or holiday work may fit into a busy student schedule. Not only does this enable the child to see to some of his own needs, but it also empowers him with the value of solid work ethic.

Teens and young adults don’t need to work full-time jobs in order to contribute, and small amounts earned over time add up. Even the lowest wage-earners can bring home $100 per week, working less than ten hours.

6. Budgets are Essential

In a plastic generation, very few people worry about keeping a ledger or a checkbook. Instead, they monitor accounts, which often leads to a shortage of funds every month over forgotten bills or excess spending. Free and inexpensive apps are a good solution for those who don’t like old-fashioned pen and paper. Spending only cash, and not using cards, can also help keep a budget on track.

Free and inexpensive apps are a good solution for those who don’t like old-fashioned pen and paper. Spending only cash, and not using cards, can also help keep a budget on track.

Kids should have the opportunity to learn about the family budget, and how money is divided up every month. Parents should also help kids create their own budgets, and even create mock budgets so that they can see how far money goes in the adult world.

It’s perfectly acceptable to explain to your kids when you’ve made financial missteps. In many cases it’s beneficial. If they’ve been watching their parents have a carefree attitude about money, this is what they’ll think is normal. Watching a parent claim ownership and take steps to correct an off-track budget is educational, too. After all, what you teach them, or what you don’t, is exactly what they’ll know.

After all, what you teach them, or what you don’t, is exactly what they’ll know.