Help them to Avoid Debts as Adults
It is an inexorable process; kids grow up. Every cute toddler will soon be a grown man or woman with adult needs like money, a job, a partner. As parents we teach our children all the life lessons that they need to learn while they are in our care.
Before we know it our children are in high school and we can see the day coming when they will leave home. Once they leave home they will want their own banking facilities, rather than to be borrowing from you all the time.
The Importance of Savings
Savings are difficult for children because they have not yet learned about delayed gratification; many adults have the same problem. There are a few ways to encourage the savings habit:
- Give an extra allowance that you and the child pay into a savings account each week. This needs to be enough that the child will be able to extract part of the savings to buy something highly desirables within a reasonable timescale. Make the extra allowance conditional on maintaining a £100 balance in the account at all times. It is a good idea to start the savings account off by paying in £100 in cash
- Offer to match anything any amount over and above the extra allowance that your child saves
- Never give your child an advance of their weekly allowance. Everyone needs to live within their own means, advancing money is setting your child up for a borrowing habit and future debts
A First Bank Account
Two of the values we try to inculcate in our children are hard work and the importance of saving. Most parents have been in the position of having borrowed too much at some point and want to help their offspring to avoid that particular pain.
It is a good idea to help your son or daughter to open a bank account as soon as they earn their first part-time wage. This account will not have a cheque book, though it will usually include an ATM card or even a Debit card.
Hopefully your son or daughter will have learned something about savings by this point. You can encourage the savings habit by again offering to match whatever he or she saves over a month. You can stipulate that the savings should be transferred to a savings account before you match them.
A First Loan
Once your child is eighteen he or she will have his or her on credit agency score, if there is any credit record to base it on. Good credit scores are worth a bit of effort to achieve because you can then borrow money more easily and at lower interest rates should the need arise.
Once your child has had a regular part-time income paid into the bank and a growing savings account for a year it is time to ask for a loan. This first loan should be a small one, and ideally one that is less than the savings account balance. £500 over a one year term makes a good first-time loan. As a parent you may be asked to co-sign this loan, especially in today’s risk-averse banking world.
Make sure that your teen pays off more than the minimum payment each month. At the end of that loan your teenager will have a positive credit record, of being able to handle debt and to repay it ahead of time.
A First Credit Card
Credit cards are a fact of adult life, and you need to help your teen to qualify for one and then to make a sensible credit card comparison in order to get the best deal. If you have been successful in teaching your child to save and to avoid debt then he or she will manage the credit card in a more adult way.
The most important fact to get across to your teenager about a credit card is that flashing the card does not pay for the goods. The goods are only paid for when the credit card bill is paid. Failure to grasp this simple fact is what leads so many to overspend on their cards.