Every parent wants only the best for their children. They want their kids to have a comfortable and secure life in the future. One of the ways to achieve security is through financial stability.
Throughout your child’s life, they will come across many decisions involving money. It would be the greatest gift to instill solid financial knowledge and habits early on to help them build a better financial future. The earlier kids learn how to make wise financial decisions, the more likely they are to do well in life.
As soon as your kids learn how money works, it’s wise to educate them about managing money to form good habits of saving, budgeting, and spending at a young age.
Children may learn about saving from other sources such as schools and books. However, it is the parent’s responsibility to learn how to handle and value money. Wouldn’t it be more rewarding to start shaping your child’s values, feelings, and thinking towards money at home?
Here’s how you can guide your kids in building a strong foundation of financial literacy.
1. Help them identify and set goals
A child may not grasp the whole idea of saving if parents do not explain why they need to do it in the first place. A great way to keep them motivated is to provide a tangible savings goal.
When your child has their eyes set on something like a toy or shoes, don’t buy it for them. Help them save enough money to buy it themselves. Guide them in creating a savings strategy to save up enough money to buy what they want. For example, your child can set aside 10-20% of their weekly allowance to save for what they want. Put into writing how many weeks it will take before they achieve their target.
2. Discuss needs vs. wants
One of the most crucial financial lessons you can impart to your kids is to discern needs versus wants. Knowing the difference between the two at an early age can save them the trouble of collecting debt in the future. It would be best to explain that needs are what people need to survive, so people need to prioritize them. These include food and essential clothing.
On the other hand, wants are “nice-to-have” but can take a back seat when budgeting. Things such as latest gadgets, concert tickets, designer kicks, or video games can wait until there’s extra money after expenses. Since they’re still young, they may not have fixed expenses yet, but educating them about needs and wants early on will help instill good spending habits.
3. Talk about money
There’s absolutely nothing wrong with talking to your kids about money. It’s a topic that needs to be discussed freely in a family setting before the children get it from someone else. Talking about finances doesn’t have to be tedious. There are several real-life situations that you can transform into teachable moments.
You may take younger kids with you when you withdraw from an ATM. Explain that the machine doesn’t magically churn out cash and that it just stores the money that you’ve worked hard to have. Moreover, let them know that credit cards aren’t a source of unlimited funds.
You can also involve older kids in creating a family budget. When children are aware of the costs of family life, they’d be more mindful of their consumption of resources. Teach them also to compare prices at the supermarket, so they’ll know which items will result in more savings. These life lessons that your kids can bring to adulthood can help them navigate financial freedom.
4. Be a good example
Children absorb information from their environment continuously and unconsciously. Parents need to set an excellent example because children watch them and learn from their every move.
This educational philosophy applies to money matters as well. When children see you saving money, investing, and purchasing sensibly, they are more likely to follow suit. On the other hand, they can also pick up unfavorable habits such as too much credit card useby observing how you use it.
5. Turn it into a game
Some studies show children learn best through playing. So, what better way to introduce the concept of money and saving than through a game. Kids love competitions, so why not create a savings challenge to keep them motivated.
Encourage them to save a determined amount every month. If the kids reach the target, they get an incentive from you. They won’t get a bonus if they don’t, but they still have money saved up. You can also get creative with your kids’ rewards. Some ideas include going out for movies or visiting theme parks after several months of consistently reaching their goals.
6. Use a savings jar
Never underestimate the power of the traditional way of saving in a piggy bank. You can tweak it a little by using a clear jar so they can see their money “grow” right before their eyes. By providing your kids with a more visual experience, they’ll get more excited and motivated to fill their jars to the brim.
To make this activity more interesting, you can provide three jars: one for anything they want, one for a specific goal (ex. a school trip), and one for helping others.
7. Start a savings account for your child
Starting a savings account for your children is an excellent opportunity to introduce financial concepts such as saving and earning. It’s an important milestone that can allow them a peek into what grown-ups do with their money. Having their bank account can also instill a sense of responsibility and accountability—traits that can help them with their careers in the future.
Involve your older kids in the whole bank account application process. Allow them to fill up the forms as you supervise.
8. Allow them to earn their own money
When kids realize that work equals money, they’d be more motivated to save. Some parents give allowances to their kids for completing work around the house. However, it would be best not to provide them with a reward for chores that are their responsibility in the first place, like tidying up their room or fixing their beds.
It would be an excellent idea to pay your older kids to do chores you usually hire other people to do. These can include mowing the lawn, painting the fence, or even helping you do simple errands or tasks. Make sure that you only give them their money once they complete the job.
9. Let them manage their pocket money
After your kids have earned their money, you can allow them to make their purchases. When they’re spending their own money, they’ll be more discerning of their purchases. It will teach them the value of budgeting and deciding which items are worth every penny.
During family trips, for example, let them buy their souvenirs or extra snacks. Observe how they apply what you’ve taught them about comparing prices and quality. They’ll also get a sense of achievement seeing how well they did the budgeting and buying all by themselves.
10. Use mistakes as teachable moments
Your kids may overspend or buy things on impulse they’ll regret later on. Instead of scolding them, it would be best to use their mistakes as teachable moments. It could be a good starting point to discuss dealing with setbacks. You can also encourage them to research their purchases first to avoid compulsive buying.
The important thing is that you let your children know you are open to discussing anything, including money matters. They should not be afraid to come to you when they have questions, more so when they make mistakes.
Make Kids Excited About Saving
Children thrive in adventure and discovery. Teaching them how to save without letting them experience it firsthand may fall into deaf ears. The key is to stimulate their minds by providing exciting activities to keep them motivated to save money.
Connecting hard work with earning can also foster essential values and life skills that they can bring to their adult life. When children realize and appreciate where the money comes from, they will be more mindful of spending it. Remember that the money habits you instill while the kids are young can help them create a solid financial future. It’s one of the best gifts that you can give them.
About the Author
Kimberly Tan is a financial advisor who loves to freelance writing about personal finance. She is very passionate about helping people in managing their finances and see them succeed in it. Reading books while drinking tea is her favorite thing to do in her free time.
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