In an ideal world, financial literacy starts at home. However, most parents are unwilling, overwhelmed or ill-equipped to teach their children good financial habits. In a rapidly changing world, teaching your children about managing money has never been more important and given how important financial skills are to navigating life, it is surprising that our schools don’t teach children about money.
As a parent, however, you can teach your child important financial lessons and you should. Kids’ money habits are usually formed by age 7. However, children as young as three years old can grasp financial concepts like saving and spending.
The sooner parents start taking advantage of everyday teachable money moments, the better off our kids will be. For instance, a parent can give their six-year-old kid some money and allow them the freedom to choose what to buy or how to spend it.
Parents are the number one influence on their children’s financial behaviors, so it’s up to them to raise a generation of mindful consumers, investors, savers and givers. But it’s not just about how money works; parents need to teach their children how to use money wisely.
Bad financial habits can land your children in great trouble, irrespective of the salary they’re earning. It is therefore up to parents to instill sound financial habits in their children and start doing so from an early age.
If kids develop good financial skills from an early age they will obviously be ready for the financial challenges of adulthood.
Giving your kids a good foundation and teaching them about money matters is critical for their personal development. Showing children the basics such as how to budget, spend and save will establish good money habits for life.
Most importantly, it is very important to teach your children that ‘Money Doesn’t Grow on Trees’.
Two life lessons
When it comes to teaching your own children, the secret to success comes down to imparting two life lessons – Delayed Gratification and Autonomy.
Teaching kids to strengthen their willpower and giving them age-appropriate independence when it comes to saving and spending will provide a foundation that allows them to grow into responsible, successful adults.
That can range from allowing your kids to decide what to save their money for or letting them decide what they spend their money on to managing their own accounts.
What’s the best way to teach my child about money?
The following are some basic financial rules that your children must be made aware of –
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Set an example.
These little eyes are watching you.
Children learn a lot about how to handle money by watching their parents. Be careful to set a good example – and don’t be afraid to admit if you don’t know how to do it. If you’re slapping down plastic every time you go out to dinner or the grocery store, they’ll eventually notice. Or if you and your spouse are arguing about money, they’ll notice that too.
Set a healthy example for them and they will be much more likely to follow it when they get older.
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Teach your kids about earning money.
One of the best ways to teach your kids about handling money is to give them a chance to make some of their own.
Teaching your kids about earning money the right way may seem obvious, but it carries a deeper life lesson that they must learn.
Children must be taught from an early age to earn money in an honest and responsible manner and most importantly, not get lured into earning it by fraudulent means.
Don’t just give your kids money for breathing. Pay them commissions based on chores they do around the house like taking out the trash, cleaning their room, or mowing the grass. This concept helps your kids understand that money is earned —it’s not just given to them.
Occasionally, offer your child an opportunity to make a small amount of extra income by doing an extra chore. Help them decide what to do with the extra money they earn.
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Teach kids about delayed gratification.
Teaching kids delayed gratification will help combat the ‘buy now, pay later’ mentality that could mire them in credit card debt later on. So, as much as you can, reinforce the idea that waiting pays off. For instance, make a homemade pizza together with all the ingredients your child loves; then microwave a store-bought frozen one. The homemade pie takes longer, but it tastes way better.
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Teach kids to avoid impulse buying.
Curbing impulse buying goes hand in hand with teaching delayed gratification. Show by example.
Before you go shopping, create a budget. Outline what you are going to buy, what stores you are going to and the price range for each item.
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Then compare prices online and clip coupons together (consider letting your child keep the savings so she sees that bargain-hunting pays). They will learn that planning purchases before buying is the routine.
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Always work with your budget.
The best way to teach kids to start managing money is to give them some. If they blow their allowance on an item (or items) and don’t have enough left for other things they really want, that’s actually a good thing: This teaches them firsthand the consequence of overspending.
Kids should be trained to weigh decisions and understand the possible outcomes. Let your child see you planning your budget, paying bills, shopping carefully, and planning major expenditures and vacations.
Explain the affordable choices, and allow kids to participate in the family’s decision making process.
Set a family goal that everyone can work towards.
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Show them how to be a wise consumers.
Before your child buys something, review alternative ways of spending the money to emphasize the necessity of making choices. Teach them to comparison shop for prices and quality.
It is advisable to teach your children some healthy skepticism so that they can resist the allure of products they see on TV and also to helps keep them from buying into the messages behind adverts – such as “If you have the right clothes and toys, you will be popular.”
Discuss how advertisers persuade people to buy their products and encourage your kids to be savvy about commercials.
7. Saving Is Cool.
If your daughter wants a new doll that she doesn’t have enough money for? Tell her to save up! Once has enough, take her shopping and let her pay the cashier herself. She will never forget how good it feels to work toward a goal and be rewarded in the end.
Set up a process for saving money in a piggy bank or bank account. Regularly monitor how much has been saved and talk to your child about goals for using their money.
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Teach them contentment.
Your teen probably spends a good chunk of their time staring at a screen as they scroll through social media. And every second they are online, they are seeing the highlight reel of their friends, family and even total strangers! It’s the quickest way to bring on the comparison trap. You may hear things like:
“Dad, Mark’s parents bought him a brand-new car! How come I have to walk to school?”
“Mom, this girl at school got to spend sh. 100,000 on her Sweet 16 birthday party. I want to do that too!”
Contentment starts in the heart. Let your teen know that some other teen somewhere is praying to
God just to get a slice of what they have at the moment is. Teach them to adore patience.
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Keep track.
Simply knowing where their money is going is a big step forward in their money management skills.
Have them use a notebook or go on a computer to keep track of their money. Make a file (or use an
old purse) where they can store receipts and statements.
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Have a wish list.
It is hard for kids to set priorities, so sit down together and make a wish list of the things they want to do with their money. Then help them rank the list by discussing what’s important about each wish.
Explaining to your children the difference between wants and needs is a great way to ensure that your kids aren’t blind consumers who buy everything advertisements tell them to. Smart buying will help them save more and hence, make their earnings count for more.
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Stress the importance of giving.
Once they start making a little money, be sure you teach them about giving. They can pick a church, charity or even someone they know who needs a little help.
Eventually, they will see how giving doesn’t just affect the people they give to, but the giver as well.
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It teaches them that money can be used to help people, rather than just for buying things. Remind them that it’s not how much you give every little bit counts.
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