While many education groups continue to press for personal finance education to take place in schools, in the meantime it is up to parents to make sure that their children and especially teenagers understand good personal finance. Most children (and even many adults) do not really understand things like APR, credit ratings or stocks and shares – and because of this they are more likely to make financial mistakes and get in to trouble later in life.
Start early and make sure that your child gets into good habits early by sitting them down and giving them a quick lesson in personal finance by following these quick and easy tips.
Before launching into anything complicated, make sure your child at least a basic grasp on the concept of money – especially if your child is young. Even if it is as simple as buying them a little piggy bank and letting them save up for a toy, it will lay the foundations of what money is and why it has value. Good behaviours like saving and assessing whether something is worth the price-tag are simple and often learnt via observation of parents. If you have good habits yourself and display them to your children, they are likely to pick up your prudence.
Take a trip to the bank
Young people will probably need a bank account sooner rather than later, especially if they decide to get a part-time job in high school. Taking a trip to the bank is a great way of explaining interests rates as you can pip your child’s interest by explaining that getting the best interest rate on a bank account will directly translate into more money for them. When the money is theirs, they will be much more likely to pay attention to the details.
Use phone insurance to explain why being prepared for the future matters
Most young people don’t bother to spend that little extra per month on phone insurance and then come to regret it later. Use losing a phone as a cautionary tale to explain why insurance of all kinds (be it home, phone, car or health related) are important. Phone insurance is the kind of insurance that young people are most likely to come into direct contact with, so it is a great chance to explain that by spending a little in the short term you will make big savings in the long term.
Make sure your teenager understands credit cards
The advice most parents give about credit cards is to stay away, when in reality credit cards are not so easy to avoid. The truth of the matter is that credit cards are actually quite essential to young adults, because unless they build up a credit rating they will not be able to secure a loan, mortgage or anything requiring credit in the future. Make sure that your teenager understands what credit is, why the rates attached to credit cards means using them costs money and why it is so easy to slip into debt. Then give the most sensible piece of advice: do not get a credit card until you are in your twenties and know that you will soon need a credit rating for things like a mortgage. Building up credit by buying small items and then paying off the payments on time is important, but it is something they don’t really need to know about or do just yet.
The only way to make sure your child knows everything they need to know about personal finance is if you tell them, and that means you need to be in the know about the best practices of personal finance. Make sure that you truly understand what things like APR are (because you could be mistaken). You never know: you might end up saving money yourself!
Guest post by Samantha P., occasional blogger, full time mother. Writing on behalf the largest independent home insurance agency, homeinsurance.com.