Talking about money with children early is important. Like most behaviors, financial discipline cultivated in childhood follows us into adulthood. Too often learning financial discipline happens when faced with debts and the responsibilities that come with independence. We have to be careful that we don’t make our children scared of being an adult, however, it is important that we realize that a key role is to prepare our children for the world.
The figures on financial awareness are poor now. Most families now save just 3 percent of their income against 10 percent in 1990. You may be able to relate to this. However, if your children are not aware of how things may be brought on credit, or the sacrifices that they don’t see so you can give them those things they may grow up with a sense of entitlement that they then can’t fulfill.
Like most learning, it should happen in small steps so from a shopping trip as toddlers to you organizing your life insurance as they are teens. You certainly do not have to wait until they’re mature and about to leave for college before you talk to them about money.
How To Teach Your Child About The Use Of Money
Your child doesn’t have any monetary responsibilities at a very young age, so that’s a good time to teach them the value of time and money. At this stage, they will not understand why you choose to buy a cheaper shoe of excellent quality instead of an expensive pair they want to impress their friends. So it’s your responsibility to teach them about wants, needs, and budgeting. If you are unsure of where to begin, we’ve made a list of 6 ways you can talk to your children about money:
- Be a role model to your child. More than just telling your children to do things a certain way, show them how you want something done. It has been proven over time that children follow the actions of their parents more than their parents’ words. So if you’re someone who splurges on unnecessary things or is terrible at saving or investing, the chances are that your child will learn the same from you even though you preach otherwise. Be transparent with them about some of your money decisions and answer any questions they have.
- Provide your child with pocket money. Giving a child pocket money is an excellent way to teach them how to manage money. Let them know they won’t get more money until the next allowance day. You can also make them account for how the money was spent in the early stages. For kids 10-13, you can create a fun activity where they account for how their money was spent. When you point out where they could have made better decisions, it encourages them to think more about things worth spending. Of course, there will be instances where they spend all their money on something and approach you for money to purchase a necessary item. Let them have that money and ensure they learn a lesson from that experience. It will help them understand how to manage their needs within a given budget.
- Let your child accompany you shopping. Lile acting as a role model is a great way to teach children about money as it’s a hands-on experience on spending choices. If your child picks an item, prompt them to evaluate if they need to spend money on that item or if they can spend it on something else. Let them understand that money will be gone forever if they select that item and pay for it. You could prompt them to look for a cheaper alternative, and this is known as comparison shopping. This way, you’re not just telling them about money; you also involve them. For many of us, it is not just always choosing the cheapest. You might also want to teach them ‘value’ or that spending money on some things is ok if it brings you happiness. Here we discuss more for happiness might mean unhappiness, and relate that instant gratification can sometimes have very negative results in the long run.
- Let them have a bank account with a card. Not many of us use cash anymore, but that means that the link between what we have and what we spend is a bit abstract. This is the same for children, who, although they realize that the card is linked to real money, don’t understand that the ‘magic plastic’ could run out.
- Explain the concept of debt to your children. In these current times this has its’ own article. Preteens may have problems understanding how a mortgage works, but the consequence of borrowing is readily known to everyone. For younger children, you can make use of those “buy now, pay later” ads on TV to teach them the implications of borrowing to pay for a need at the moment. You can show them the maths; let them know that purchasing a $1000 TV will cost $1200 after an accumulated one year’s interest of 20% when they make use of the store’s credit card. Then teach them sales concepts, whether annual sales, Black Friday, boost sales, or holiday sales. This way, they know that there are always avenues to get good quality items at lower prices. It is also a great way of saving. It is about the fundamental lesson that a company’s role is to make money. Therefore be wary of any ‘deals’ that there might be. Also that not all debt is bad. Buying a house requires debt but you can budget for it and make sure that it is affordable. In a similar way, talk to them about inflation.
- Let them make mistakes. Then don’t undo them for them. If they decide to spend three months’ pocket money on a Pokemon collectors kit. That they then decide is rubbish. Hold them as they cry, and support them in their ‘loss’. However, there is no greater lesson in money than it can only be spent once than having that reinforced in the real world.
- “Employ” your child and let them earn money. Most children don’t know what it feels like to earn money and the feeling of working for one’s money. For example, asking a six-year-old where the money comes from may say from the bank or their parents. They may not fully understand that their family can afford things solely because they work. Teach your child about jobs, the concept of earning, and the fact that people get paid for the jobs they do. Perhaps by so doing, they will come to value money more. For example, during the summer breaks, you can “employ” them to rake the garden or wash the car for a bit of money. They could also do other things like selling old toys or chocolate to earn money. This way, your child knows how much they have to work to earn that money; and it’s a fact that hard-earned money isn’t easily wasted. Here we discuss whether you should pay your child to do chores. In my opinion, it isn’t an all-or-nothing thing. Emptying bins and loading the dishwasher is what you do as part of a team. But payment for a bigger job that replaces something I would do is reasonable.
- Set a savings goal for your child. After introducing pocket money to your child, introduce them to saving. This step should come after your child is slowly used to the idea of having an allowance. You can begin with getting them a piggy bank where they keep spare change and monetary gifts from the family. Challenge your child to meet a specific target at the end of the month. For example, you could start with 5% of your pocket money. And as your child meets that savings goal, you can gradually increase it as time goes on. You don’t need to hover over your child anytime they bring out money to purchase something. The goal is to encourage your child to spend sensibly and make independent money-making decisions. All you have to do is evaluate their progress and provide help as and when necessary.
Final Thoughts on Talking to Children About Money
Put your reservations away. Welcome your child into your life of decission making. It has taken you decades of mistakes to know what you do. Don’t be scared to talk to your child like an adult about adult issues. Enjoy being the ‘expert in the room’. Let them feel empowered as you talk about interesting aspects of the news. Talking to children about money shouldn’t be so difficult. If you are having problems with it is likely that you are letting the effect of your childhood and your parents talking about money affect your parenting.