Perhaps one of the perennial questions parents need to confront is this: how and when should you explain the concept of money to your kids? For some, keeping children away from money until they’re older and more mature is the best solution. However, we all know that raising financially savvy kids does not happen overnight. Thus, the earlier they learn about money management, the better.
If you are planning to give it a start and lay the ground rules, here are some practical tips and suggestions you can apply:
Educating your child about money at an early age helps them become more responsible as they grow older. If your child has learned how to count, you can demonstrate the value of money by teaching them that once you spend it, it’s gone. To help them understand this even more, you can take them shopping and have them look at the price of a toy or food they want, and the money that you have.
- Differentiate between wants and needs
Do they need a new Lego kit? Or do they want it? Guiding your child in understanding between needs and wants can help them set priorities and know which things are real necessities and which aren’t. Teach them that needs always come before wants. And if they say they really need something, challenge them by asking their reasons.
Open a savings account
It’s essential that parents stress the importance of savings. Whether you set up a savings account for your kid or buy a piggy bank, it’s necessary that they make it a habit to set aside a portion of their money for savings. You can also help them set a goal for what their savings will be for. Do they want to go on a trip, buy something, or prepare for unexpected events?
Make them earn and spend their own money
Having them earn and spend their own money is one of the best ways for your kids or teens to learn the real value of money and handle it responsibly. For example, if he or she wants to buy something, let them know that you won’t be paying for it unless it is an absolute need. That way, they’ll be challenged to raise some money to purchase what they want. You can set up chores for them and compensate them, or encourage them to take part-time jobs, such as babysitting.
Teach them the mechanics of credit
Teaching your children the mechanics of credit, from credit cards to personal loans, will help them become more financially aware and avoid serious financial dilemmas. When you should tackle the more intricate concepts of money and these financial tools must depend on how mature your child is. Let them know how a credit card works, the different types of personal loans, instances when they should avail of one, the risks behind various loans, and the importance of settling their dues on time.
Set a good example
Children are more likely to follow what you do than what you say, that’s why becoming a model for good financial practices is simply a must. Show them how you manage money by creating a budget and explaining how you allocate your expenses. Nevertheless, some parents may feel that they aren’t capable of becoming a role model because of their debt and the poor financial decisions they’ve made in the past. But this shouldn’t be the case. The more financially challenged you are, the greater the need for your child to learn healthy financial behaviour.
When it comes to teaching children basic money management skills, parents must take the lead to prepare them in making smart financial moves in the future. It may be challenging at first, but the benefits it brings are truly invaluable.