If you have children, you may see yourself as a lot of things. Maybe a teacher and a friend. And while you may strive to be a good role model for your children, you may not see yourself as a financial role model.
Being a financial role model for your children is a bigger deal than you may think. The way we manage money influences every aspect of life. It affects whether we set aside enough funds for retirement, how we manage debt, as well as how much we have in an emergency fund. If you weren’t taught how to manage money, you may mistakenly skip money discussions with your own children. But even if you don’t sit down and have a discussion, your kids are watching. They’ll follow your good examples, and repeat your mistakes.
Some parents teach their kids to avoid credit cards at all costs. But this isn’t the best advice. If used responsibly, credit cards aren’t bad. In fact, a credit card can help your child build a credit history. Rather than create a negative image, teach your children the proper way to use credit cards. Of course, this means that you have to educate yourself and learn how to manage credit card debt yourself.
If you shop excessively and your children see you swiping a credit card every time you go to the store, they’re likely to repeat this behavior. They might view credit cards as an endless money supply, and they may not consider the consequences of debt until they’re overwhelmed with high balances. Don’t use credit as your “get everything” card. Use cash as much as possible, and when you do bring out your credit card, pay your balance in full each month.
If you’re driven by what others have, and if you’re constantly trying to keep up with relatives and friends, your children will pick up on this behavior. They might grow up thinking that they need the latest fashions to fit in and be happy. This can trigger a life of overspending and excessive credit card use.
Teach and demonstrate the importance of living within your means. Don’t buy houses and cars that you can’t afford, and don’t use material things to compensate for low self-esteem. Be honest with your kids – and yourself. Most people who walk around with the latest and best of everything are also deep in debt. They may have it together on the outside, but weighed down with worry and anxiety on the inside.
As parents, you may quickly come to your child’s rescue if he needs cash or faces a financial crisis. However, this doesn’t teach your child responsible money habits. Make your children responsible for their actions at a young age. For example, if your child accidentally hits his baseball into the neighbor’s window, or if he accidentally breaks an item around the house, put him to work. Although you may go in your pocket to initially fix the problem, give your child extra chores around the house to work off the debt. This way, your child learns that some actions have financial consequences.
As a financial role model, teach your children how to stretch their dollars and get more for their money. This simple lesson can be of great benefit during their adult years. Whether you’re shopping for food or buying clothes, always shop around and compare prices. You might find an item you need in one store, yet another store might have the same item half-off. Show your kids how to go online and locate coupons codes, and if they have a favorite retailer, have them sign up for email clubs to receive discounts and sale announcements. If you pay full price for everything and never wait for a sale or clearance, your kids will follow in your footsteps.
Kids aren’t born knowing how to save, and most don’t have the desire. However, you can teach the value of saving by your example. If you diligently set money aside for their college education or build a household emergency fund, you actions won’t go unnoticed. In all likelihood, it’s because of this fund that your kid can attend college, and if you or your spouse are laid off from work, an emergency fund might carry your family for a few months. These experiences can help kids grasp the importance of saving their money.
Get your kids saving at an early age. Think beyond piggybanks and open a savings account. Require that your kids deposit a percentage of their weekly allowance and any gift money.
Teaching your kids how to save and compare prices is a good start, but don’t stop here. Educate your older kids on credit reports and teach the importance of credit monitoring. Avoiding high credit card debt can help your kids maintain a good credit score once they’re ready to apply for credit. But more is involved than this.
Set the example and order your personal credit report each year. Discuss all aspects of responsible credit card use, such as paying bills on time, limiting credit applications and diversifying credit accounts. Talk about the dangers of credit report errors and the importance of disputing mistakes. Give your teenager some practice and add him as an authorized user on your credit card account. He’ll learn how to manage credit under your guidance, which can prepare him for getting his own credit card.