Financial Words Parents Should Teach Their Kids

“On savings: A dollar here, a dollar there. Over time, it adds up to two dollars. – Jarod Kintz”. This habit is exactly what you are expected to nurture a young one in. After the age of four years, kids develop the ability to grasp the concept of saving, influencing them considerably quickly.

As an example make them save toffees that you give for a week, at the end of that period see their reaction. Following which let them know that money works the same way. Before long, the child will become versed in the habit of saving.

“An estimate of income and expenditure for a set period is a budget”. Explain budgeting most excellently by the three-jar rule, to an eight-year-old and above. Advise them to divide their earnings into three jars, beginning with the savings jar, which will hold money for a future goal.

The second jar can consist of money that your kid wishes to help someone in need with or charity for a good cause.

Also, the final jar can hold his money for smaller purposes and urgent requirements. Also, include your preteen in family budgeting discussions and vacation planning. By giving him a chance to calculate, the vacation expenses like lodging, travel, food and fun pastimes to acquire the theory of budgeting.

The theory of loan and debt infiltrate the mind of a child at quite an early age because as kids we all have at some time or the other lent things to our friends or siblings, anticipating its return. It is a simple enough concept to impart; a loan is an amount of money that you have borrowed for your personal use, like buying a house, car or for college.

While, until you return the money to the lender it stays a debt. Importantly explain further the reasons why people need to take these loans their reasons for doing so and how imperative it is to give back this money.

Also Read: 13 Things Mentally Strong People Never Do.

“Interest is money paid by a borrower to a lender for a credit or a similar liability. It is the charge for the privilege of borrowing money.” By the age of eight or ten years, children become very sensible and to illustrate the idea of interest, take a small loan from the child and repay it after a prefixed time with added interest to the original amount.

Older kids will understand this concept easily and learn the working of banks. They also grasp the fact that while a loan causes you to pay interest, an investment earns it. You must teach this financial education to your kids and help them to make their future bright.

“A contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some later date. When a consumer purchases something using a credit card, they are buying on credit (receiving the item at that time, and paying back the credit card company month by month). Any time when an individual finances something with a loan (such as an automobile or a house), they are using credit in that situation as well.”

The next time your teen borrows money from you let it be in the form of credit, with an interest exercised on the credit, which keeps accumulating until credit repayment.

Furthermore, do not forget to point out to your youngster that debit card is the opposite of a credit card; any payment by a debit card is deducted directly from your current account.

Credit bureaus record credit score on all your credit activities. Maintain an excellent score by paying all your credit card bills and loans on time. Timely payments help in receiving an elevated score, which affects the future relationship with credit companies and banks, and their raised trust in you. When teenagers realize the profits of a high credit score, they will always try to keep it impeccably impressive.

“A tax (from the Latin taxo; “rate”) is a financial charge or other levy imposed upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state to fund various public expenditures.”

To teach your teenager about financial literacy is a great idea. Taxes and tax deduction from your earnings, take a small amount of money from teens pocket money for some family expense, this will help him grasp the theory of taxes.

However, tax exemption applies to money given to a charity, investment in a government policy or scheme as well, is an essential chapter to profess.

“ investment is the purchase of certain goods and entities in the present, with the belief of earning potential profitable returns on this undertaking in the future.” While educating your kids on monetary functions, it is significant to educate them on the factors of investment.

Nevertheless, do not shy from explaining that investments may not always flourish as expected. Enlighten them to invest a small portion of their wealth in diverse investment schemes, because placing all your money on a single plan is not advisable, ending up being disastrous.

“A stock is a type of security that connotes your proprietorship over a piece of a corporation’s equity or capital. The stock comprises of mainly two types; common and preferred. Common stock entitles the owner a right to an opinion and vote in shareholders meetings, including a right to earn dividends. ”

Teenagers can grasp the theory of stock easily. It is easy to demonstrate to them how if you own shares in a company, the company’s profits will raise the stock value and its losses will reduce the value of the stock.

It is a fun investment technique but requires a detailed study of market trends. Stock Market is the place for dealing in stocks another option being the Internet.

“A qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis.” Young adults and teenagers when commencing preparation for a work life, it becomes necessary to enlighten them with the perquisites of the 401(K) plan. How this plan builds a retirement pension and provides all comforts even after retirement.

The government levies a tax exemption for all those who invest in this scheme. Other similar schemes are Individual Retirement Account (IRA), Pension Fund and Provident Fund.

Youngsters grasp the multifarious aspects of money at varying levels of age. Teach and demonstrate to them the significance of being patient with their expenditure.
Help them learn that wealth is extinguishable, and about the benediction of long-term savings.

Their awareness of money functionality helps them decide judiciously, about colleges and student. Parents are the example that their little ones pursue, so remember to practice what you preach, and you will reap what you plant. I hope this guide on financial literacy for kids will help you out to get the best results.

Also Read: Habits of Financial Successful People You Should Know.