Parents invest in their children’s futures in all kinds of ways: early education, music lessons, sports, saving for university. But if financial literacy isn’t part of your daughter’s early years, she may well find herself ill-equipped when it comes time to strike out on her own.
Like most members of her generation, your daughter will likely begin adulthood with some significant debt. The average student graduating from university today is carrying more than $20,000 in student loan debt. Additional debts, like auto loans and high-interest credit card debt, are also common.
Despite these harsh realities, many young people receive little to no basic financial education. Instead, they find themselves learning the ropes of financial management in a frightening and potentially overwhelming sink-or-swim immersion.
One of the best things you can do for your daughter today is begin involving her in the money matters of your household. More than anything else, children learn from their environment and watching their parents. Many of us are, understandably, intensely private about money. But that approach doesn’t help our kids learn financial responsibility.
Nothing is going to help your daughter understand finances better than real life. Here are just a few ways you can lift the veil and make sure money is no mystery:
1. If you’re paying bills, involve your daughter. You probably have at least some bills that you’re paying online or having automatically deducted from your account. Teach her about these arrangements, but also let her practice math by balancing the check book the old fashioned way.
2. Walk her through your bank statements and explain the money coming in versus the money going out.
3. Teach her the ins and outs of a credit card account—particularly the difference between making a minimum payment and paying in full—and how quickly interest will accrue with the former!
4. Open a savings account. But don’t stop there. Teach your daughter about investing and the risks and benefits of different options.
5. Don’t let your daughter’s first paycheck be her first introduction to taxes! Spare her the shock and show her your next pay stub or tax return.
6. Give your daughter a loan: either “play money” or a small amount that she will be able to pay back. Create a loan agreement, set an interest rate, and agree to a payment schedule. Like a real-life lender, don’t let her get away with not paying it back!
The importance of early financial literacy cannot be overstated. Taking the time now to prepare your daughter for her financial future is one of the best investments you and she will ever make.
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