Purposeful parenting to raise money-wise children
Thursday, 7 May 2015
Children learn by example, and this is certainly true when it comes to managing money.
They see how their parents spend, save, and talk about money, and draw lessons. What's more, kids' habits and attitudes develop at a young age. According to one study by Cambridge University researchers, by age 7, most children's financial habits have been formed. The earlier your child learns basic money-management skills, the better.
Below we've outlined some easy ways to teach key financial skills, so that your children gain financial literacy.
1. Explain where money comes from
Most financial transactions occur electronically, via credit cards or online payments. As a result, children may not have a clear sense of where money even comes from.
It's important for parents to talk to their kids about the connection between work and money. Take your child with you to the bank when you make a deposit or withdrawal from the ATM. Talk to your children about how you work very hard so you can pay for your family's food, housing, and other expenses. You might even discuss how many hours you need to work to pay for a big-ticket item, like a new couch.
2. Introduce the concept of a budget
Explain to your children that every month, you have to pay bills, and that you try to wisely manage what is left over. You might show your children how this works when you sit down to pay your bills online. Talk about how each month you allot $100 for your gas bill, but since this month, the bill is $95, you have a little extra to spend on other things. If you use an online budgeting tool, you might give your kids a peek at that, too, since many children are drawn to technology.
Of course, giving your children a regular allowance is a great way to help them learn the power of budgeting. Many experts recommend giving children a piggy bank with four slots -- one for spending, one for saving, one for giving, and one for investing.
3. Talk about wants versus needs
It's not unusual for children to clamor for the latest toy or gadget. They may not understand why parents say "no." Talking to your children about the difference between wants and needs is a way to help them understand.
Explain that needs are those things a family must have to survive, like food, a home, and clothing. Wants, on the other hand, are things we would like to have, like toys and smartphones. What would happen if you spent all of your money on toys?
Keep reinforcing the difference between wants and needs. When you're shopping together, for instance, ask your children to point out which items in the store are a "need" and which are a "want."
4. Stress the importance of saving
There are two types of saving — both are important. First, there is saving for long-term needs, like retirement or a college education. Every month some of the money you earn is put into an account for your retirement, or their education. This is another opportunity to point out how you budget. A top priority is saving for things we need, like money for retirement.
The second kind of saving is short-term, and it's usually to purchase a "want." Explain how you put aside money every month so the family could take a vacation. You might suggest your child also put aside a portion of her allowance every week, so she could buy that new video game she wants. This not only teaches savings skills, but something equally important: delayed gratification.
Remember, kids learn by watching you. If they see that you make saving a high priority, they will be far more likely to make that a habit too. Talk regularly to your children about budgeting, saving, and responsible decision-making, and they will be well on their way to becoming financially responsible adults.
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