Knowing how to make good financial decisions and responsibly handle your money is one of the most important things we have to learn. Financial skills are learned over time, often with mistakes, but there’s no reason we have to learn every financial lesson the hard way.
Teaching young people financial skills gives them a crucial foundation for them to establish their independence in the world. The earlier you start showing children the basics about budgeting, saving and spending early, the better prepared they’ll be for the financial challenges of adulthood.
Learning how to plan, maintain and stick to a budget is one of the most important pillars of financial health, no matter how old you are. A budget is a simple way to understand how much money is coming in, going out and what it’s going towards. Planning a budget helps young people conceptualise cash flow and begin setting goals, whether that be for their first car or even a home!
Helping children understand money earlier is even more important today as most of it is “invisible” thanks to cards, internet banking and online shopping. Cash makes it easier to get your head around the exchange of goods and what things cost. Budgeting is one tool that can help make cash flow less of an abstract concept by allowing you to see everything coming in and out.
Bank Account Basics
Young people today will not have to deal with paper cheques and many other forms of financial paperwork, but they will still need to learn the basics of banking. This include minimum balance requirements, service fees, overdraft fees and what it means to be overdrawn.
They should also learn about different types of bank accounts and the benefits they can have, such as high interest savings accounts. Ensure they understand how interest works when it comes to fees and savings, as well as the magic of compound interest.
Basics of Debt
Young adults should know the importance of building a positive credit history and how debt works. Ideally, they should learn the difference between good debt and bad debt. This can be done with examples that will be very relevant to them. Some examples of good debt include a university degree or buying a property, and examples of bad debt being a credit card or car loan.
The Importance of Saving
It’s essential to teach young people the importance of setting money aside for emergencies, as well as for financial goals. Talk about the need to have back up funds for jobs loss, unexpected medical bills, car repairs and other unexpected costs.
Stress the importance of differentiating needs vs wants when it comes to instilling better saving practices. Like budgeting, it’s a simple concept, but one that is difficult to master without the right development and reinforcement of personal discipline.
Ways to Develop Financial Skills Early
There are a number of ways to start instilling financial smarts and skills before your child leaves home and begins to be financially independent. This includes:
- Asking them to help with shopping and research, including comparing prices in stores to find the best possible deal.
- Make them responsible for personal costs early, such as their mobile use. This way, they can start checking and minimising data usage, set boundaries on use as well as comparing and selecting pre-paid options or plans.
- Involve them in the financial aspects of planning an event like a birthday, outing or holiday, looking at transport, food, accommodation and other expenses so they have a detailed understanding on how much such undertakings cost.
You should also discuss the impact of advertising early on. This includes what kind of tactics and persuasion techniques advertisers employ to try and attract you to their products and services.
Speak to Kaboodle Finance
If you need professional financial solutions for restructuring your loans or insurance in New South Wales get in touch with Kaboodle Finance. Our friendly team strive to offer friendly, practical and easy to understand solutions to help you achieve your financial goals.