10 Ways To Teach Your Children About Finances
Ah, childhood. It’s an innocent time, a world that exists mostly without the strains and stresses of having to juggle wants and desires with financial reality. When they want to be fed, food appears. When they want something special, they wait for Santa Claus to deliver it to them. All good and well…for a little while, at least. There’ll come a day when the truth about money hits them hard. You can fulfill your parental duty by teaching them about it early on in their life, interweaving financial responsibility into their day to day life. Below, we offer ten tips for making sure your little ones go on to become financial masters.
Getting What You Want Takes Time
It’s not a natural – or indeed, a welcome – thought for a child to walk into a store, see something they want, and then think “if I want this, I’ll have to build up my money and buy it later on.” They want it right now; that’s what they’re built to feel. You can step in by letting them that patience is a big part of life, especially when it comes to money. You can be encouraging all the while saying that, no, they can’t have that toy right now. “That’s a great toy. If you save up your pocket money, you’ll be able to buy it in ten days”, for example.
This, or That?
You can’t have everything in life, and this is especially true when it comes to choosing what you want to buy. It’s all about choices. Part of your child’s educational journey will be learning that sound financial practices – and indeed most of life – stem from choice. You can have everything you want and be in crippling debt, or you can prioritize on what you spend your money. It’s not a natural way of thinking, so it might take some time for the message to get through. Presented in a store by a child who wants two things can be anxiety-inducing; or you can see it as an opportunity to educate them.
Giving an Allowance
There’s no better way for your child to understand how money works than putting it in their own hands. If they have an allowance, they’ll be able to see the correlation between saving money and edging towards getting what they want. When they’re in charge of their own cash, they’ll quickly come to understand that they can’t have everything. How much should you give them? It’ll depend on their age, but Michael Banks suggests that “you want your child to have to save for bigger items they may want.” If they’re given a weekly or monthly allowance that enables them to move toward what they want within a realistic timeframe, they’ll understand how budgeting works and the sense of achievement that comes with getting what you want after a period of patience.
How the World Works
When your children are small, you should be aiming to make “the financial world” as transparent as possible. The sooner that your little ones can make the connection between money and products/services, the better. As such, try to use cash as often as possible. It can be difficult to understand the concept of money if all they see is their parents getting whatever they want from a plastic card.
Hard Work = More Money
Another thing you can when your children are young is to establish the link between hard work and more money. Of all the traits you can instill in them, none will be as valuable to their long-term prosperity as this fact. If they’re willing to roll up their sleeves and work hard, they’ll always be able to make money. If they’re nagging you for extra cash, don’t just hand it over: have them perform one of the many daily chores that you need to do around the house. They’ll quickly learn that you don’t get money for nothing in this world.
Laying out the Pitfalls
There’ll come a time when you’ll have to spell out some harsh financial realities; chiefly, that even with hard work, it’s not always just a matter of biding your time and saving money until you’re able to afford it. Some things will always be out of reach! Again, this isn’t an exercise in breaking their little hearts: it’s an opportunity to teach them about the dangers of overspending and falling into debt.
A Spending Journal
When your child is getting a bit older, encourage them to keep a spending journal, detailing all the money they received and everything they spend it on. It’s all too easy to spend money on non-essentials (even adults are guilty of this), but by having them make a note of everything they buy, they’ll be able to see quite clearly how they’ve ended up with no money left. In the future, they might think twice before blowing all their allowance on milkshakes!
Taking Control of their Money
Just like paying them to do chores around the house, nothing will make them more connected to their cash than by having them strike out into the world and make their own money through a part-time job. Your child will resist this (and why not? They want to have fun!), but it’s an invaluable step along the financial education.
Give Them Adult Knowledge
One of the many complaints younger adults have is that they were never taught about financial matters while in school. Don’t wait for the education system to pick up the slack: education them yourself. Teaching them about things like mortgages, how to save, the risks and benefits of credit cards, and so on will give them a head start in their financial life, and may prevent them from making some of the common financial mistakes.
Your Financial Situation
And finally, remember this: your children learn from you in many ways. If you’re sensible and responsible with your money, the likelihood is that they will be too. Be wise and set a model example for your kids!