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As parents, our aim is to raise children who will grow into mature and responsible adults. One crucial skill that can never be taught too early is empowering them with the knowledge of managing money and finances. It really is a delicate balance that needs to be found as there should not be a fear instilled in them towards money, or a greed invoked that can lead them to see money as a tool towards power. It is getting them to know and understand finances in such a way that money can one day enhance their wellbeing rather than be the obstacle that may lead them to never fully realising their full potential.
Instil Financial Responsibility from Early Years
In a study by the University of Minnesota, it was concluded that the best way to teach children about money is through example and applied practise. Adapt a mindset of using everyday experiences to educate your child about saving, spending, sharing, and borrowing. Parents are often tempted to shield their children from these concepts either because they think it is “adult problems” or because they themselves have unhealthy relationships with money.
The research from the University of Minnesota further found that children as young as three years old can start to understand basic economic concepts and by the age of seven they have developed permanent financial habits. It is at this age especially where children will be looking at you to see how you talk and act which will inform their own values and concepts of the world around them. This is also true about finances and money, so be mindful of how you express yourself regarding your finances when they are around.
Conversations About Money
When your child is in pre-school, start the conversation by explaining that material goods and experiences cost money. Start by making them have a piggy bank as it is the best way to illustrate the concept that certain behaviours and decisions can either increase or decrease their piggy bank balance. It is important to use the piggy bank system to teach them about earning and valuing money, but also about the spending side. Teach them about setting their own financial goals and then about how they need to earn and save money towards achieving it.
Avoid making the mistake of only educating them about saving money as this may lead towards an unhealthy relationship with money stemming from greed and fear of scarcity. Aim rather to use the piggy bank system to teach them about how to spend their money wisely and allow them to make mistakes and learn from those mistakes.
Teach Them About Different Prices
When children are in elementary school let them help you with grocery shopping and walk them through your thought process. Explain to them that there are different brands and why they may cost different prices. Explain to them why you chose to buy one brand rather than another due to your needs and/or budget. Explain to them concepts such as bulk buying, sales and using a store card as smart ways to save money, but also to be aware of pitfalls associated with clever marketing and loans. This is the age where your aim should be to install in them a keen curiosity about money matters and an interest in how the system works.
Explore Advanced Financial Concepts in the Teenage Years
More sophisticated concepts can be introduced when children are in their early high school years. Explain to them how interest and the power of compounding work by way of examples. Make it a further point to talk to them about why credit cards are a useful tool, but how it needs to be used responsibly and maturely. An important concept that needs to be emphasised is understanding the difference between wants and needs as a way to understand the value of money. Investment concepts and financial products can also be explained to teenagers and once again if you can explain this to them with real life examples you take away the illusion that finances are somehow abstract and difficult to understand.
As a parent it is your duty to install positive values relating to money in your children as part of their upbringing. Helping them understand finances will equip them to use it as a tool that can enhance their lifestyle without it having a hold on them in later years.