It is practically every parent’s dream. Your child comes home one day to tell you they are moving out. Some parents sigh in sorrow, while others cheer loudly. As a parent, you hope you have taught your child to stand on their own. Part of “standing on their own” means being mindful about their finances.
Spending Versus Saving
There is nothing wrong with either. Some kids are spenders, and some save their money. You should teach your kids how to do both. There is a difference between being a mindful spender and an out-of-control spender. You need to show your child how to spend mindfully. Did you know that you can spend and save money at the same time? Teach your child how to do that by picking thrift shopping over expensive shopping. You can find a lot of great deals and great items at a thrift store. You just need to know where to look.
Your child should learn about bank rates as soon as possible. Teach them to shop around and compare the deals. A 5% deal differs from a 3.5% deal. Teach them the difference between an APR and an APY, and the different factors that influence them. What they learn about banking rates before they move out is going to influence things like their first car or their first home.
You never take the first deal they offer.
The trick is to spend less than you earn. What works for you might not work for them. Encourage your kids to budget their money. A good rule of thumb is to pay the bills first. Whatever “fun money” is left over they can spend if they like. They can also put some of that “fun money” into savings for a rainy day. There is nothing wrong with spending as long as you do it wisely.
They are going to learn about credit cards anyway. It is better if it comes from you. Teach them how credit cards work. Teach them the advantages and disadvantages of having them. It is okay if your kids keep one around for emergencies, but you need to teach them about what constitutes an “emergency.”
Debt can include but is not limited to things like student loans, car loans, house loans, credit cards, or personal loans. However, there are ways to avoid debt. Educate your kids on how to fix the problem. That way they will know what to do if something like that happens.
Net Income Versus Gross Income
Gross income is what you make before taxes. Net income is what you make after taxes. Your kids need to understand how each one works. That way they will not spend more than what they have.
Your net worth indicates what your true value is.