Every parent wants the best for their kid(s). This doesn’t only suggest that you want them to have the best clothes, the most excellent toys, or the coolest gadgets. More often than not, you want them to be protected, and you want to set good principles that would guide them, and they could also build upon.
Many parents are great when it comes to teaching their kids about courtesy and safety, but when it comes to finance, only a few know how to begin. Money skills are one aspect of parenting that most parents neglect or even avoid.
“As a society in Britain, we don’t talk about money – it’s a massive taboo,” says clinical psychologist Dr Elizabeth Kilbey. “Unlike other aspects of parenthood, there is no joking around with the issue. Consequently, parents revert to knowledge, transferring their habits down to children.”
“Without a proper understanding of money, it is most likely that it becomes difficult to do well in life,” says Sam X Renick, co-creator of Sammy Rabbit, a children’s character and financial literacy initiative.
“Money is fundamental to living. Everything, from the place we live, food, clothes, car, healthcare, education, children upbringing, vacations, having fun activities, involves money.”
The truth is, even if you’re not educating your kids on financial literacy, they will get to learn some other way which may not be appealing to you. You wouldn’t want that.
Here are the right ways to teach your kids to be financial literate
- Start early
Renick said that “over the years he has taught children’s financial literacy, he discovered that the earlier you begin to teach a child about finance, the better it is. It is ideal to begin before age 7,” he says.
When your kids are grown enough to know they shouldn’t be sticking pennies in their mouths, it is the right time to introduce them to coins and cash. Explain what money is and how it is used, don’t assume they know. Showing them how money works is more practical. Make purchases in their presence and let them watch; It sinks better in their heads.
Chase Peckham, director of community outreach for the San Diego Financial Literacy Center, said that when his kids were in preschool, each time he used his debit card to make purchases, he would explain to them what he was doing. Sometimes, he would show his kids receipts with the amount he paid. “By doing it repeatedly, it became a habit to them,” he says. As they grew, they began to understand.”
- Teach them the difference between wants and needs
While your child will normally request trending toys or games, you should make them know the difference between needs and wants. Teaching them will enable them to make reasonable spending choices from a young age.
You can do this by explaining to your child in a context that the child can comprehend, like using examples.
“If they want a toy that costs about £400, let them realise that people work every day and for long periods to earn such an amount of money. So, while that toy could be important, it is not necessary. This could help them choose more affordable toys,” says Kilbey.
- Inculcate in them a saving habit
Your kids will only think money is meant to be spent since they see you do so all the time. Hence, it’s necessary to explain that money isn’t just meant to be spent, and saving is an essential money management skill- they should also practice saving too.
“Saving teaches discipline,” Renick says. “Saving teaches goal-setting and planning. Saving emphasises being prepared. Saving builds security and independence.”
You could help your kids get started by giving them a piggy bank or savings box and encouraging them to keep a part of any money they earn or get as a gift.
- Give opportunities for your kids to earn money
You could give your kid that chance to earn an allowance when they do certain chores in the home. Of course, parents shouldn’t pay their kids for doing house chores since they are supposed to do them. But when they tend to work extra, giving them an allowance is a way of encouraging them.
This act could give your children a sense of responsibility. Knowing that they worked for the money, they will put some value on it.
Peckham said when his kids were younger, he would give them a weekly allowance, but they now get a “salary” deposited directly into their bank accounts every month. He says that his kids have negotiated an increase in their salaries by subscribing to taking on extra jobs around the house.
Raising financially prudent kids is not an entirely easy job, but it is worth the task. In the next edition of this article, other practical approaches will be shared that could be helpful.