useful Guide - How to Boost Understanding of Managing Personal Finances

Posted by Credit expert

February 27, 2009

Personal finance of everyone is very important in achieving personal goals and obtaining success. With this in mind each person should look after his or her personal finances. Moreover it is important to teach your kids how to manage personal finances and save money. Many parents are hesitant to discuss their personal finances with their children. They may feel that discussing finances will burden and worry them or maybe they want them to just focus on studying and school work instead of worrying about money. But there is a greater risk that they will be unrealistic about their future income if they grow up not having a good grasp of how to handle money. They will be more likely to take on higher student loans than they will be able to pay off. This is also true for the amount they spend or borrow for cars, apartments and/or houses, cutting into their future savings, retirement and financial security.

How can you teach your children to manage personal finances? First of all when they receive money or allowances, have them begin saving a part. Talk to them and explain to them why this is important. Let your children watch you pay your bills and let them see your paychecks. Show them how you budget your money. When your family needs to cut back, include your children in the discussion. Also, ask them for suggestions of ways your family can save money. It’s important for them to learn how to handle financial difficulties. The benefits of teaching your children how to save money and about personal finances will carry throughout their life.

Franco Modigliani, Nobel Laureate in Economics in 1985 developed the model life cycle in which he analyzes the consumer behavior of an individual during his life. He studies several facets of personal finance economic agents during different stages of their lives. The author divides the period of life into two parts which is the activity and inactivity or retirement. The period of activity which includes both sides reveals changes in personal finances of individuals. During the first phase, their personal finances are not very good because their consumption is very high, sometimes exceeding their income. During the second phase people borrow to purchase consumer goods and investment. At that time, personal finances are beginning to improve as savings becomes positive and important heritage until the end of their life. During the period of inactivity, personal finance begins to deteriorate as their incomes fall and they want to maintain the same standard of living.

This shows us the importance of dealing with finances during our youth, as it is the best time of our life because during this period we have the opportunity to influence our personal finances through of our revenues from our activities.

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