Are you in the process of creating your list of New Year’s resolutions? Here’s something worth adding: talking to your kids about finances. While most parents understand the importance of having finance and money conversations with their children, some studies indicate that at least 49% of parents don’t know how to have these conversations.
In many cases, the topic of finances is something that is not taught early enough (or thoroughly enough). Many parents often wonder if it is too early to talk to their kids about money or if it’s too early to get them a debit card, among other things.
Some studies indicate that people can better manage their money if the topics of finance happen regularly while they are young. Fortunately, with smart financial tools like kids debit card, talking to kids about money and finances has become a lot easier nowadays.
BusyKid even offers an investing app for kids to help them understand the basics of investing. As soon as your kids start earning a paycheck, having money conversations is something you should no longer overlook. It is also your job to encourage them to ask money-related questions they need guidance on.
Below are some of the most important topics you should cover when having money conversations with your kids:
Setting Money Goals
Financial goals are the milestones you set for your money over a specific period. They are just as important for your kids as they are for you. Encouraging your kids to set financial goals and save money can help them better appreciate the importance of financial literacy and creating healthy financial habits.
Short-Term Savings Goals
Short-term savings goals are those goals your kids can achieve in less than a year. For instance, saving for a concert is one example of a short-term goal you can help them meet.
Sit down with your kids and help them figure out how much they earn on a weekly or monthly basis. Ask them about the concert ticket price and figure out how much they need to save to purchase it.
Long-Term Savings Goals
Long-term savings goals usually take over a year to accomplish. Examples of long-term savings goals include purchasing a car, paying for their college tuition, or going on a spring break trip. When it comes to long-term goals, it will make practical sense to introduce a budgeting method like paying themselves first or the 50/30/20 budget.
Planning for Unexpected Expenses
It is ideal that kids know the difference between saving for specific financial goals and planning for unexpected expenses. Saving for a financial goal like buying sneakers or a car is something they can complete on a short or long-term basis.
On the other hand, saving for an unexpected expense involves maintaining financial stability in the event of a job loss or medical emergency not covered by insurance. Help your kids prepare for unexpected expenses by teaching them how to build an emergency fund.
Putting Their Money to Work
Aside from using investing apps for kids, you can also set up a custodial investment account for your kids to teach them the basics of investing. This kind of account can help you teach your kids basic investing skills, and it also helps you maintain control of their investments.
If your kids receive large monetary gifts, chances are they would be tempted to spend the money on big purchases like electronics or new gadgets. In similar situations, it would be ideal to encourage them to allocate the money towards their long-term financial goals instead, like purchasing a car or saving for college.
Dealing with Taxes
Taxes are considered an integral part of everyone’s finances, so it makes sense to teach your kids about the basics of dealing with taxes. Inform them that taxes are deducted from their earnings so they can end up with less money than they originally earned. It is also ideal that they know that they must file tax returns yearly.
How to Keep the Conversation Going
Make sure to talk to your kids about money and finances on a routine basis. Keep in mind that basic financial literacy is crucial since early financial mistakes can change the trajectory of their financial circumstances significantly. Also, keep the money conversations going organically by involving your kids in financial decisions like creating the grocery list based on the budget for the month.