It’s commendable to raise your kids today with an eye toward the future. Teaching your child how to be financially independent will help smooth the transition into adulthood. It will also give your kid the tools he needs to achieve and maintain financial wellness throughout his life. Here are some tips for raising kids into financially independent adults.
Start with basic budgeting
Successful budgeting is the foundation of every financially independent household. You can introduce your child to the concept of earning money and spending it mindfully when he’s still young, and then build upon that knowledge as he grows older. Preteens can watch you work on an actual budget, and teens can even assist you in creating a budget for a large expense, such as a family vacation.
Another way to bring this lesson home is by showing your child how to budget his own money. Help him create columns for “income” and “expenses,” listing his allowance, occasional gift money and income from any jobs he may have in the income column, and the ways he’d like to use his money in the expense column. Show him how to divide his money across his expenses in a reasonable way and talk to him about setting aside money for the future.
Finally, you can allow older kids to make some spending decisions on their own, provided they don’t later complain about the choices they made. For example, you can give your preteen a specific amount of money to spend on a fall wardrobe, and then let him choose to spend more on a jacket and less on a pair of sneakers, or vice versa. He may make some mistakes, but you’ll be teaching him a lesson he’ll carry with him throughout life.
Split the costs of “must-have” items
If your child is like most, he’ll likely be asking you for all sorts of trending items he claims are absolutely a need. This could be anything from a pair of designer jeans to the latest fad toy he insists his entire class already has. As a parent, you may be inclined to bend and give him what he wants more often than you’d like. Or maybe you’ll play hardball by refusing most of these requests. Neither approach is likely to leave both you and your child feeling happy with your choices.
A great way to compromise on how often you say yes to your kid, and to teach him a good financial lesson at the same time, is to have your child pay half the cost of expensive trending items. He’ll quickly realize what seems like a “must-have” really isn’t when you’re the one paying half the bill. Or, he may go ahead with the purchase and either come to regret it as he learns this lesson later or enjoy the gratification that comes from paying your way toward an important goal.
Teach your child about credit cards
To a child, a credit card is a magical piece of plastic that makes everything possible. If your child observes you using a credit card or debit card often, you owe it to him to teach him what’s behind that little card. Show him your credit card bill when it arrives in the mail and talk about how you need to pay for all those expenses you swiped during the month, plus the interest you may incur. Teach him about debit cards too, explaining how money is withdrawn from your checking account when you swipe the card. It’s also a good idea to give older kids a quick rundown on credit scores, how they work and why they’re so important.
Open a savings account for your child
A youth savings account gives your child the opportunity to budget and save. Have your child set a goal for something he wants like a video game or new bike. Figure out how much he will have to save each week to buy it. This will teach him that he has to work and save for things he wants.
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Open a checking account for your child
Experience is the best teacher, and when your child is old enough, giving him his own checking account can be an excellent way to teach him how to manage his own money. You can open a youth checking account under both your names to help your child learn all about money.
He can make his own deposits (with your help), check on his balance, and may even enjoy a debit card to use when appropriate—as long as he has enough funds in his account to cover the purchases. This first account opened and managed under your watch can help him easily transition into handling his own money as a financially independent adult.
Talk openly about your support for the future
When your child is mature enough to talk about his college years and beyond, it’s time to have a conversation about his transition into a financially independent adulthood. The more you communicate about your plans now, the less room you’ll leave for misunderstandings and upset feelings in the future.
Be open and specific about how much financial support you plan to offer while he attends college, immediately after he graduates and further into the future. Ask about his plans as well, paying attention to when he anticipates being financially independent and whether you believe he is being realistic in his planning.
When speaking to your child about the future, it’s a good idea to bring up the topic of career paths and earning potential as well. You can help your child determine a basic budget for the lifestyle he plans to lead, and then assist him in narrowing down his career choices to just options that can support his future desired lifestyle. Talk to your child about student loans too, and explain how crippling debt can be.
It’s a scary world when you must step up to manage money on your own, but it’s also a world filled with wonderful opportunities. Use the tips outlined above to help raise your child to be a financially independent adult.