In my teens (and a lot of my twenties) I’ve lived from paycheck to paycheck, spending my money on going out and having fun. And there’s certainly nothing wrong with that. However, just about every perception I had about myself and how I existed began to shift when I fell pregnant with Amelia. Suddenly I was going to be the reference point for how to exist is the world properly. Amelia walked early, began talking early and started asking questions I wasn’t ready for way sooner than I expected. One of the popular recurring questions revolves around why exactly we can’t have a horse.
Logistics aside (we live in a small apartment!) I began to explain something of money and debt. In order to make this ‘click’ with her we had to go quite far back, I briefly summarised why an ‘economy’ exists, why I have to work at the laptop to get money and why we can’t just buy everything we want all the time. I was surprised how much of it sunk in on our first talk and I realised, by accident, how crucial it is to have an understanding of all this. If you’re anything like me none of this was touched on until you were in high school and even then I wasn’t prepared for everything I’d need to know about money in the big bad world.
So I’ve developed a little ‘at home’ curriculum for Amelia over the coming months that cover a few essential lessons to prepare her for her financial future. These are not the sort of tips you need to be a financial expert to understand; instead, they’re a foundation to help build a stable financial future on.
- Reign in those impulse buys
Even when you’re young it makes sense not to rush out and spend every penny you earn. The art of frugality is an important lesson to learn from an early age. That’s not to stay you can’t be spontaneous, but making unplanned purchases and impulse buys every time you leave the house leads to poor money discipline that will start to hurt in the long run. It’s important to me that I demonstrate the concept of ‘treating’ myself to my daughter, and that luxury items are just that – a once in awhile treat. Being unable to control your impulse buys is one of the major contributing factors that leads to debt. I know how easy it can be to become trapped in a cycle, and while Amelia is years off being a credit card candidate she already has an understanding of ‘credit’ that isn’t yours to spend.
- Understand the basics of saving and investing
If your child ‘gets’ the basics of these it’s possible to make your money work for you. You don’t have to be a financial whizz to save sensibly, benefit from interest payments and build your wealth. While saving and investing are both ways of looking after your money, they are actually quite different.
Saving accounts are low-risk and easily accessible, allowing you to save money and benefit from a small interest payment. It’s a good idea to set up a savings account for your child (be it for education or an 18th birthday present etc.) but made them aware of it, explain how the interest works and let them see it grow over time instead of it being a magic surprise on a birthday. As they mature (and if you have the experience yourself) consider an introduction into Investments, although these in general have greater associated risks they have the potential for greater reward. Learning the basics of investing early is key to getting your money to make money.
- Really learn about the ugly and bright sides of debt
The truth is that debt is not necessarily a bad thing. There are times in our lives when we all need to borrow money, whether it’s for your mortgage to buy a house or a credit card build our credit rating. I have both of these and I consider myself relatively savvy with money. I’m not advocating that you get into debt to learn the basics first-hand, but you should have some idea of how debt works. For example – learn the jargon, know what APR means and be able to compare the cost of different sources of finance. Ensure your child understands that not all debt is created equal and some will put you in a better position financially (which sounds counter-intuitive!) There’s an easily digested guide to good and bad debts viewable here that I recommend checking out.
The financial decisions you make when you’re young can impact the rest of your life, so it’s important to arm your children with all the information they need to make the right choices. Please share any tips, ideas and feedback with me in the comments section below! Thanks!