4 Ways To Raise Kids To Be Financially Independent as Adults
The transition from living at home to being a financially independent adult can be a difficult one. These days, young adults face numerous financial challenges thanks to inflation, soaring housing costs and large student loan balances.
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But by teaching important finance lessons early on, you can give kids the skills and knowledge they’ll need to navigate those challenges and become financially independent adults.
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Normalize Money When Kids Are Young
Laurel Makowem, CFEI, a financial empowerment coach for women, developed Mothers Teaching Money, a financial education platform for mothers and their children. Makowem recommended that parents of kids under age 10 introduce money concepts early, but focus on normalizing money and laying a solid financial foundation. “Make the conversations fun, playful, inclusive, respectful, positive and engaging,” she explained.
She provided several tips to help guide conversations around money with young children.
Keep conversations short and use simple language that kids can understand.
Let children see that talking about money without emotion, tension or drama is a normal thing to do.
Use everyday examples to teach money lessons.
Intentionally set aside some time each day or week to chat about money.
Don’t say no to a purchase, but explain the reason you can’t buy the particular item for your child at that time.
Rather than using language like “We can’t afford that,” say “Right now we are choosing to spend our money in this way because…”
Monica Eaton, AFC, founder of Money with Moni, is the author of “Money Plan,” a rhyming picture book that teaches children about budgeting and saving. Eaton explained that by age 10, children have already formed unconscious beliefs about money that can be difficult to reframe later in life.
“One of the most effective ways parents can prepare their children for financial independence is by demonstrating the behaviors they want their children to follow,” Eaton explained. She said that children should learn to distinguish between needs and wants, and that parents should involve their children in discussions about the importance of saving for the future.
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Let Children Manage Parts of Their Personal Budget
Middle school-aged children can start to take on more responsibility and begin to apply the financial concepts they learned when they were younger.
Eaton suggested that parents allow their children to manage parts of a budget. “For example, giving your child a set amount of cash on Monday to cover expenses like lunch, transportation or extras for the week teaches them that money is finite and requires planning to meet both immediate and future needs,” she explained.
This can also be an ideal time to introduce goal-setting concepts. Eaton recommended that parents help children understand what savings goals are and how to achieve them. “Parents might encourage their children to participate in the household ‘economy’ by earning money through completing chores, further reinforcing the value of work and money management,” she said.
Teach Teens Essential Financial Skills
“Today’s teens are growing up in a highly digital world where banking is more likely to happen through a smartphone than with a checkbook,” Eaton explained. “This makes it essential for parents to teach digital financial literacy.”
Eaton suggested that parents teach teens digital financial literacy skills, like how to use digital tools for transactions, how to track their spending, the difference between debit and credit cards, and how to protect themselves from scams on apps like Cash App and Venmo.
She said that teenagers can also learn important lessons about how careers and finances are related. A parent can discuss how career choices impact financial independence. It’s also important to explore career planning, potential career paths and the earning potential of different careers.
Parents can also encourage teens to start building up an emergency fund. “A reasonable goal could be $500, but it depends on you and their situations,” Makowem explained. “Get them to draw up a list of what they consider an emergency.”
Makowem also suggested that parents start asking teens to contribute small amounts to the household, such as a percentage of what they earn. Teens can contribute to certain budget categories, like power, groceries and luxuries like Netflix.
Transition Teens Into Financial Independence
Though children are legally considered to be adults at 18, they often lack experience and aren’t fully prepared to be completely independent adults. Eaton suggested that parents act as advisors during this transition phase. For example, if a teen plans on going to college, parents can help them explore funding options, like scholarships, grants and student loans, while also discussing potential benefits and consequences of each option.
Makowem recommended that parents help older teens create a budget by going through their monthly expenses and income. “Ensure they prioritize saving and investing as expenses in their budget,” she said. “At this stage, it doesn’t matter how small; it is the mindset, discipline and habit you are helping them develop.”
Makowem suggested several other ways for parents to support older teens as they transition into financial independence.
Encourage teens to establish more than one stream of income.
Teach teens how to be smart, intentional shoppers, such as how to compare prices, shop sales and look for the best deals.
Explain how taxes work and that they are nonnegotiable.
Explain the upfront and ongoing costs of car ownership.
Explain the basics of personal finance, including concepts like minimum payments, balances and interest.
As far as financing a teen’s education goes, the choice is deeply personal and will depend on your family. “Parents should determine the role they wish to play in covering educational costs well before major decisions about college arise,” Eaton explained. “While there is no universally right or wrong approach to financing education, the best solution is the one that aligns with your family’s unique circumstances and priorities.”
There are bound to be hiccups and challenges along the way, but focusing on strategically introducing financial concepts and supporting children as they learn about and explore finance can set them up for successful financial independence.
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This article originally appeared on GOBankingRates.com: 4 Ways To Raise Kids To Be Financially Independent as Adults
