As time goes on it becomes increasingly more important to know how to properly spend money.
As a parent, one of the greatest lessons you can teach your children is the ability to know how to wisely manage their own money when they get older. This is especially so if your day care centre does not provide financial literacy as part of the curriculum.
People are creatures of habit and poor money management skills as adults could be caused by spending too much as a child. It’s never too early to teach your children good money habits that help them to be independent individuals.
Here are 5 ways to teach your children about financial responsibility:
1) Lead by Example
Our children often look up to us to know what to do and more importantly what not to do.
So show them smart money making decisions early and teach them why they should make smart money management a habit.
For instance, when you’re out with your little one(s), and you’re at say, a supermarket, you can narrate to them your decision-making process as you select the item that gives the most value for your money. You can walk them through how you made your choice, and they will be able to learn this thinking process just by observation.
Sometimes, the dialogues that children overhear from their parents could potentially become their inner voice.
2) Teach Saving, Giving, and Spending Wisely
Teach your children that they shouldn’t put all their eggs in one basket. Start simply by dividing their spending budgets into three main categories.
You can do this by giving them three mason jars, one labeled for each category. Encourage them to divide the funds they have into each jar appropriately. The jars can be labelled “food”, “toys”, and “books” for example.
3) Take it to the Bank
A savings account for your child can be opened with just $100.
Introduce them the idea of having money sitting in the bank over a long period of time. You can even give them a little glimpse into the different types of banks that are available to them, and explain how you personally choose the institution that you bank with. Telling them what “the adults do” in general would make the conversation more interesting.
In addition, studies show that children who possess a savings account early on are much more likely to accumulate more wealth as they get older too!
4) Introduce Investing
While investment strategies are quite a complex matter to introduce to kids, it would be a good idea to expose them to the concept earlier on in life.
Instead, begin explaining the concept behind investing as simply as you can, and how they can make money work for them.
You can be their “bank” and use their savings jar as an example and donate some interest. This might even encourage them to save more, to accumulate more payouts!
This is also a great lesson on the “greatest force in the world” – compound interest.
5) Let Them Rough it Out
As parents we always want to baby our children and make sure they do everything according to what’s good for them.
This of course isn’t always ideal. In order to learn to ride a bike they must learn the consequences of falling and scraping a few knees. Likewise, let them make a few silly money mistakes and they’ll soon learn to be that much more conscious about their spending than they ever would have been otherwise. At the risk of sounding mean, you can set up a trap and say, “Hey, let’s spend all your money from all 3 jars on that toy!”.