The following is a guest post. The Debt Princess is a blog written by Jessica Streit, a broke, single mom who has made so many mistakes with her finances that she can safely tell you what NOT to do. Her hope is to use her blog as an example for young adults of the negative consequences of getting into debt so they may avoid it for themselves.
There are over 600 million credit cards held by US consumers. Of the households with consumer debt, the average total is over $15,000.
Fifteen thousand dollars!
I am one of those who has credit card debt and it is right around that $15k amount too. That is completely unacceptable in my opinion. I do not want to belong to this statistic. More importantly, I do not want my children to belong to it either.
In most states, personal finance is not part of the school curriculum. While that does need to change, we can not afford to wait for it to happen. Parents must take the responsibility to teach their children how to properly manage their own personal finances.
There are many aspects of finances that must be taught, however I have narrowed that list down to four.
The Four Golden Rules of Finance
1. Understand the difference between a need and a want.
Children these days are growing up with the most expensive toys of any of the previous generations. They are used to getting more under the tree at Christmas, more for their birthdays and more, just because.
These children are growing into adults who do not understand the difference between a need and a want. Ask a 14 year-old if a cell phone is a need or a want. My guess is that 99% of them are going to tell you it is a need.
Another aspect to this rule is to teach our children to wait for what they want. A need is a priority and should be covered under our budget. A want, however, does not get a space in the budget and should be saved for.
2. Pay yourself first.
It is important to teach our children the need for a savings account, including long term savings, emergency funds and eventually retirement savings. Even more important is to show them how to automate their savings and pay themselves first.
Take the time to teach your children how to seek out quality savings accounts and when they are older, explain to them how IRAs work as well as investing.
3. Spend less than you make.
Want to avoid unnecessary debt? It’s simple. Spend less than you make. Teach this golden rule to your children and you will be setting them in the right direction with their financial life.
4. Tell your money where to go.
Providing your children with the tools to make their money work for them includes making a budget, learning how to live without credit cards, automating their finances (to avoid late payments) and living on cash.
Providing your children with these tools will ensure their ability to live happy, comfortable and debt free adult lives.
It is never too soon to talk to your children about money. As they mature, provide them more lessons in personal finance. Once graduation and living on their own comes around, you can be confident that they will be successful.