5 Financial Words Every Parent Should Teach Their Kids

"An investment in knowledge pays the best interest." – Benjamin Franklin.

As times have changed so has the role of money, its financial worth has elevated. Every enterprise in the recent times requires a monetary function hence, elevating the obligation to not only to acquire information about currency and its operation us but to enlighten our children about it as well. In this smartphone generation financial literacy for kids is must. And only you as a parents can teach them about financial education.

An investment always has good returns, similarly, when we advise and educate our kids in their childhood, they carry forward those values into the future. Learning about wealth management though is an essential subject has stayed unintroduced in our education system. Following which the obligation to impart this knowledge becomes a parental one.

There are certain words related to currency and their numerous functions, which all parents should educate their kids for a good financial future. These financial words have varied utilities being advantageous in learning about financial functions, management, expenditures, etc.

# Savings

“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.

# Budget

“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.

# Loan/ Debt

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.

# Interest

“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.

# Credit / Credit Card

“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.