There’s no way to expect a child at any age to understand money unless you talk to them about it. But it can be hard to begin that conversation. Here’s how to get started.
Studies show that parents find it more comfortable to discuss bullying, drugs and smoking than family finances. But the sooner kids are taught how to save and spend properly the better.
Talking about money is also talking about values. Pocket money is for instance also about patience, while charity is about selflessness. Talking about money gives your children a perspective on life. Here’ our five tips on how to get the conversation started:
Helping children distinguish between what they want and what they need might be the most important step in teaching them good money habits. For younger kids, the terms can be explained quite simply: The basics like food, clothes, shelter are all needs. The wants are all the extras like candy, toys and vacation. They are nice to have, but we can’t always get them. Get your children to write their own ‘wants vs needs’-list, just to see what they will come up with. This will help them understand the concept.
Giving your kids an allowance is a great opportunity to teach financial capability. If you want your children to become money savers, giving them their own money provides them with the opportunity to learn how to use it. Connecting extra allowance to tasks at home teaches them that people work to earn money. But don’t get too carried away with the tasks, since money shouldn’t be the key motivation for helping out at home.
Saving up money without being told why is totally pointless. Help your kids define a savings goal to get them motivated. If they know what they are saving for, help them break down their goals into manageable bites. For example, if they want to buy a $50 video game and get a $10 allowance each week, help them figure out how long it will take to reach that goal. ERNIT data suggests that kids that choose an easy and reachable first goa which they will reach within a month are more likely to save up for bigger goals afterwards.
Many parents forget to explain their kids what they’re supposed to do with money once it’s earned. Children as young as 3-4 can start receiving pocket money, and with that allowance comes the idea of budgeting and saving. A popular way of demonstrating saving and spending is using clear jars for each purpose:
When you’re at the grocery store, have your kids point out items that they want. Tell them that for less expensive things, they should use the spend jar. For the more expensive items, they’ll need to use the save jar. They will soon find out that spending a lot on small things makes it harder to reach the more desirable expensive items.
Piggy banks used to be a very popular place to store your allowance. But in this digital day and age cash is increasingly replaced by credit cards and payment apps, and to be frank; if your kids are a little older, you would probably be less inclined to use a piggy bank. So you may want to use an allowance app and/or set them up with their own bank account. This way it will be easier to keep track of the progress.
The idea of letting your children control their own money, is to let them learn from their own experiences. To learn from their mistakes. It’s tempting to step in and prevent them from a costly mistake, but it’s much better to use that mistake as a teaching moment.