June is the time for families to celebrate and appreciate the fathers in their lives.
A study done by researchers at the University of Maryland School of Medicine in Baltimore found that, “children who have fathers in their lives learn better, have higher self-esteem, and show fewer signs of depression than children without fathers.”
Children learn many lessons from their dad. One important lesson dads can impart is how to handle finances. By the age of seven, kids understand basic financial concepts that can influence their decisions later in life.
Start with financial literacy
Since very few schools teach kids basic financial concepts, and research shows conclusively that a lack of these skills leads to poor financial decision making, this should be a priority. According to FINRA, those with higher financial literacy are more likely to plan for retirement, to have an emergency fund, and are less likely to engage in expensive credit card behaviors.
Instill a Strong Work Ethic
Kids who are hard workers have a better chance of reaching their goals. In a world of entitlement, understanding that reward comes from hard work and commitment can give your kids an edge.
Create opportunities for your kids to work, young and often. Start with small chores, and progress to more responsibility as they grow older. Get them involved in the tough jobs, like yard work and cleaning. And let them experience the consequences of not working hard. Most important of all, model a good work ethic in your own life. The willingness to get up and do what has to be done prepares them for future success.
How to budget and save
Start when they are young. Instead of a piggy bank, use a glass jar, so they get the visual of the money growing. Open a savings account at the bank, and let them put the money they earn, as well as the money they get for birthdays and holidays, in it. Show them when they earn interest, and teach them how that works.
When they are teens, give them an allowance, and insist that they have a budget so they can control their spending. Share your household budget, and make them aware of how important it is to know exactly how much is needed each month and where the money goes.
The dangers of debt
It’s never too early to teach your kids about debt. When they reach their teens, it’s definitely time to make them aware of the pitfalls of borrowing money and how compound interest works. Show them calculations of how much you would pay on a credit card if you borrow $5000 and pay only the minimum each month.
Explain about credit scores and why they are important. Show them what lowers a score and what raises it. Give them examples of buying an item on credit and how much interest you’d pay with a score of 550 versus one of 750 and what that will cost you in the long run.
The wisdom of investing
Once they’ve learned to manage their money and save, it’s time to teach them about investing. Keep it simple at first. Investing is putting your money to work for you. Buying a stock is just buying a tiny piece of a company, and the price of that stock will track the performance of the company over time.
Share your own saving and investing plans and make a game of it. Let them invest “play” money and track how they would do.
Father’s Day is just one day in the year, but being a dad happens every day of their lives. By teaching them these financial basics, you will help them to live a successful life.
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