I have previously written about advising clients on bankruptcy relief because they have taken on the burden of not only their own debt but also debt incurred for their adult children. I know the client has found themselves in financial turmoil because of love for their child and it is hard, but necessary, to advise the parent to stop this behavior in order to find financial solutions. Parents of minor children may want to give consideration to having conversations early in childhood about money and finances in order to hopefully avoid the trap of taking on debt later to help an adult child. While it may seem that the topic of money and finances may be above the heads of small children or teenagers, a closer look reveals there are many ways to have this discussion that kids will understand.
How Can I Help My Child Understand the Importance of Money?
According to CNN, very simple steps can be followed to give children a good sense of how money works. According to the article, Important Money Conversations to have with Children, the first step is teaching children about saving money. If the child is earning money for chores, as an example, saving up their money to buy something special the child desires like a video game or a pair of sneakers can teach them early how important saving money is. In America today, 57% of adults have less than $1,000.00 in savings at any given time. Many unexpected emergencies that arise in adulthood require more than a $1000.00 to resolve, so it is easy to see how not having enough in savings to weather an emergency can require taking on additional unforeseen debt. Learning this lesson early in childhood will help your child carry the habit of saving money into adulthood, according to financial coach, Alok Deshpande, and give them a much better chance of weathering financial storms to come.
Second, teach your children about the benefits of compound interest at an early age. In today’s world adults approaching retirement can no longer rely on pensions from their employer to fund their retirement years. That usually leaves the retiring adult dependent on Social Security benefits and 401K or IRA savings. The typical Social Security retirement check is approximately $1,500 monthly. If there are no significant amounts saved in a 401K or IRA during the working years, this monthly amount will not go far. A good way to teach children about how compound interest can enhance their savings over the years is to give your child $100 and then pay a reasonable rate of interest on that $100 each month the child manages to keep the money in savings. With compound interest paid on the balance each month, that $100 would grow to $446.00 over ten years. Now that may not seem like a lot of money but remember there was nothing added to the original $100 except the interest that was paid on it each month. The more added to savings, the more that added interest grows exponentially.
Third, teach your children how much effort it takes to actually earn money. A child sees his parents go to work each day but has no real concept of how much that parent earns each day he or she is away working. With the genius of the internet, one way to teach children how much is involved in earning money is to help the child sell something of theirs online. Going through the process of locating a web site like eBay to sell the item, taking the picture and posting the item, and then researching the web to find out the best sales price for the item can really illuminate to your child how much effort goes into earning a buck in this day and time.
Finally, as I pointed out in my blogs about helping out adult children, at some point in the future, the parent will pass away and there will no longer be anyone for the adult child to look to for financial bailouts. It is better to initiate lessons on the importance of earning money and saving money while a child is young in order to hopefully avoid the child reaching adulthood without solid tools to assist them in the effort.
If you find that you are in possible need of bankruptcy relief and wish to consult with a qualified bankruptcy attorney about your options, please contact one of our locations nearest you in Alabama, Mississippi or Tennessee for a free, confidential consultation.