It’s never too early to start teaching kids the nuts and bolts of money management and the sooner they learn positive financial habits, the better. A survey from T. Rowe Price, found that 69% of parents said they’re extremely or very concerned about helping their kids learn to manage money but only 25% actually make budgeting a topic of family discussions. If you’ve got kids, here are the top budgeting lessons they need to learn now.
1. Spend less than you earn
Teaching your children how to live on less than what they earn is one of the most basic of all budgeting rules. Unfortunately, judging by the fact that total credit card debt in the U.S. is expected to reach $1 trillion by the end of 2016, it’s one that plenty of adults still struggle with.
So how do you make kids understand that spending more money than they’re making is a bad idea? You lead by example. If you’re in credit card debt because of bad spending decisions you made early on, paying those balances down should be a top priority. The other part of the equation is avoiding racking up new debt for things you can’t really afford in the first place.
You can also give kids some context by explaining what it takes to maintain your family’s standard of living each month. You don’t have to get specific with the numbers but you can tell them what percentage of your income is required to cover housing or food, for example. That can give them some perspective on how much things really cost.
2. Needs and wants are not the same
Needs and wants are two different things and it’s important for kids to figure that out early on. They need to know that needs are the things that come before anything else while wants are the extras. If they don’t understand that distinction it’s going to land them in hot water once they’re out on their own. They have to grasp that bills need to be paid first before they spend money on shopping or hanging out with friends.