Most parents would agree that preparing children for a lifetime of independence is a fundamental goal and responsibility in order for them to become money-mindful adults.
But despite wanting children to enjoy healthy financial futures, parents often forget to inculcate a good financial understanding and independence in them from a young age. The good news is that whatever age your children are, it’s never too early or too late to teach them practical money management skills. The most important financial pillars to understand include knowing the value of money and where it comes from; the importance of saving for things they may want later; and how to make better spending decisions.
Here are some tips to get you started:
1. Start money conversations early
Even at a very young age, kids can understand the concept of more versus less, so you can literally start introducing them to money matters as soon as they have mastered counting and basic maths. Start off with small, fun activities such as counting change from two piles and then asking them which pile has more coins vs which one has more value; encourage them to read prices at grocery stores and understand the concept of an item being on sale; and even understand how much money is deducted from their travel card with each bus or MRT ride, etc.
2. Give children an allowance
Giving children an allowance helps them build money awareness and it’s better to make a mistake at 12 with $20 than at 35 with $20,000. Start off by giving your child an amount that matches their age and ability to handle the money, so that they can focus on controlling how to spend their allowance, rather than get blindsided by how much money they have.
3. Encourage older children to earn money through work
Most of us give children chores at home and perhaps pay them a nominal sum to introduce them to the concept of having a job and earning money by doing some work. After all, it’s a lifelong habit that they’re going to need to get used to. Help older children find small jobs after school to get them into the habit of earning a little extra pocket money for them to spend on what they would like. Babysitting, pet-sitting or taking dogs for walks are just some of the ways children can learn more about the value of money and how to earn it by getting a job.
4. Involve children in major family purchases
When your family is planning on making major purchases such as a home, new car or kitchen appliances, including children (if they are old enough) in the process can be hugely valuable. Shopping for big ticket items can teach children the importance of doing research before making such a big purchase; the factors that go into your decision-making; and how to compare products and prices. Finally, once you have settled on the product together as a family, let your children accompany you when you are ready to make the purchase, so that they can see the theory process become a reality.
5. Introduce the concept of trade-offs
Help children understand that they only have a finite amount of money to spend, so they have to be able to stick to a budget and make choices within that amount by honing in on their spending decisions. Trade-offs and understanding the difference between needs versus wants are a great opportunity to teach children about having to choose between two things; or perhaps something that is much more expensive than what they originally wanted to spend on it. For example, if they absolutely must have the more expensive thing, they must learn to figure out where the extra money will come from - otherwise they can’t afford it. Living within our means is another lifelong habit that they will encounter so better for kids to start questioning as early as possible whether they’re spending on something necessary or just something that’s nice-to-have. Plus, by maintaining a budget, children learn the significance of setting and achieving short- and long-term goals.
6. Teach children about credit cards
Teenagers know how to pay for purchases on a credit card, but not many understand how they work or the dangers of credit card debt problems. It’s important to teach older children how to use credit cards; how to pay off a credit card bill; what happens if they don’t pay on time; as well as the hidden costs associated with credit cards.
7. Teach kids the importance of saving for a rainy day
Whether they receive cash for chores completed or as a birthday gift, or in a birthday card from the grandparents, it’s important to teach kids how to strike a balance between income, spending and savings. The earlier this concept is introduced to children, the more likely they’ll develop strong savings habits and get to financial independence faster.