Despite the importance of financial skills in life, schools don’t really teach children about money. It’s up to parents to educate their children how to properly save money, spend wisely, stick to a budget and turn into financially savvy adults.
So, what are the best financial lessons to teach your kids?
Lesson 1: Learn how to budget
Children need to understand that money is limited, and it will run out if you spend it faster than you earn it. Budgeting is an important concept that needs to be taught so children understand the value of having money in reserve.
If your child has $30 for example, explain to them they can spend some of it on an inexpensive item and have some left over, they can spend all of it and have nothing left, or they can continue to save and buy something more worthwhile later on.
Lesson 2: Delay gratification
In a world where we seem to want everything now, loans and credit cards are being used more than ever and it’s easy to fall into the debt trap.
Teach your child that if they really want something, they should save for it. Help them set a goal, and create a chart showing how much they’ve saved and how much they still need. If they can visualise their progress, the incentive will keep them focused.
For older kids, show them how making regular deposits into a bank account quickly adds up, so they can reach their goals with patience.
Lesson 3: Income matters
Money generated through employment is most likely going to be your child’s first taste of an income.
It doesn’t matter what the job is; babysitting, car washing or chores around the house. Any kind of task where the child receives money as a reward will teach them the connection between work and income as compensation.
Lesson 4: Let them make their own decisions
Telling your child what they can and can’t spend their money on is not the best approach. Kids learn from their mistakes, so let them make some.
Allow them to make some impulse purchases so they realise the consequences of their decisions. If they must have a new T-shirt, let them buy it, but point out that the money they spend comes out of their savings, so reaching their long-term goal will now take longer.
Lesson 5: Long-term saving can grow your money faster
As your kids get older, you can start to shift away from the idea of saving money for a short-term goal, and introduce them to the idea of compound interest. Explaining how they can earn interest on their savings can be an exciting eye-opener for a teenager.
This is an age when kids want to buy the latest and the coolest things right now, so teaching them to think about long-term goals is crucial. Learning to give up something small today for a greater reward tomorrow is a great life skill to have.
The big picture
Setting your kids up to manage their own finances as adults is vital. It’s so important for them to be financially educated and independent so they can cope with the opportunities, challenges and uncertainties that life often throws at us.