How Can You Teach Your Kids to Avoid the Debt Trap and Build Real Wealth?

Parents, whether they realize it or not, have a greater role than anybody else in bringing up their children. Children are born with no preconceived idea about this world. It is the parents who can prepare their children for the hard realities of life. Financial situations have a huge impact on happiness and success. Since customarily, parents or even the legal guardians get more opportunities to interact with the children until they reach adulthood, they have an obligation to guide the children properly to attain financial success. However, teaching can be done through guidance, combined with practice and not preaching alone. Nobody denies the fact that money is important, but that is not everything. Children should be raised with the intention of providing them with proper education and nurturing good moral character. Such approach will automatically create a balanced lifestyle for them that will enable them to be solvent. As soon as being rich becomes the goal, all the virtues will fly out the window. Wealth without character is not what I would consider a priority. Parents can help children to be destined to a financially secure balanced life by setting certain examples:

1. Children learn what their parents do. So, the parents should never be extravagant themselves.

2. Children need to be taught to set budgets. If the budget does not allow for something, that cannot be an immediate priority and it has to wait. They have to set a goal and work toward setting funds aside and fulfill their wish once that goal has been attained. Using the "plastic" to purchase is not an acceptable option and creating that mentality is the parents' responsibility. When parents set up a monthly budget, never spend more than what they earn and make savings a habit, children are bound to follow in their footsteps. As long as you do that, you know you have done your part.

3. You love your kids; but don't keep on buying them expensive toys and brand name clothes. Buy them something that they really need.

4. Parents should take their time to explain how borrowing money can lead to unnecessary and added expenses that are hard to minimize. When appropriate, examples or own life experience can be shared with the children to make the point.

5. It is a good idea to have them help you with chores. The understanding will get established that they will need to take responsibility and render service to earn something.

6. There should also be a routine set up to save money in a piggy bank and use the savings to buy toys on occasions. Some parents open up joint savings accounts when the kids are minors just to introduce them to the concept. They can take over once they're old enough. The same bank account with its transactions will help them establish a good credit history.

7. Parents can also do some things on their own without making the kids aware of that: These are the things that you SHOULD NOT talk about and SHOULD NOT let them know, if you want them to grow up and assume their roles in due course of time and/ or don't want them to wait for your death like vultures. For example:

a) Set up education funds in the form of College Savings Plan (Plan 529). Most of the qualified expenses will allow the fund to be used tax free.

b) Set aside funds for education under UGTMA (Universal Gift to Minors Act). The tax rate will be low.

c) Save money in their name in the form of U.S. Savings bonds. Even if they go to college or get a Master's degree, as long as they are dependents or have lower income, they will get a lower tax rate.

d) If you have a house, you can include the child's / children's name(s) in the title so that they do not have to pay inheritance tax after your death.

All of us want to do the best for our kids and we do not mean any harm; but overzealous assistance can ruin it for us. Therefore, do what you think is best for your kids, but with caution!