3. Build a Safety Net
The sooner children understand the value of an emergency fund, the sooner they may reach financial independence.
To teach them about the emergency fund, start with budgeting. Have them record their spending, even if it’s only small amounts, on a spreadsheet or budgeting website. This gives them a view of their total spending.
You also want to explain the difference between recurring bills for necessities, like rent and electricity, versus discretionary spending, like new clothes or eating out. By understanding the difference, children see what they need to prioritize and where they can adjust if money is tight.
Typically, you want an emergency fund to cover three to six months of necessities in case of a sudden job loss. Emergency funds also can be used to cover unexpected expenses, like a fender bender or medical bills.