Financial literacy is important for kids as it helps mould their perspective on money when they grow up. Kids are definitely able to grasp the fundamental financial values by age 6 to 7 years old. If you fail to teach them the value of earning, budgeting, and saving, you’ll invariably be teaching them to spend, spend, spend.
So open your books, and show them how everything adds up. Below are some smart ways your kids can learn about money from you. Start building the money smarts for your kids with these simple lessons.
Don’t be surprised if you ask your 6-year-old where the money comes from and he says “ATM”. While that could be a cute response from a child, your kid should be a little more financially qualified by now.
Children should be aware that their parents work hard to earn their money. Explain to your child that you make money that goes into the bank and that the money leaves your account anytime you use an atm or write checks to pay bills. Encourage your child to ask money questions.
However, you don’t need to go into detail, such as your exact income or all of your financial issues. You don’t want your child to think about the bills, or feel bad that they cost you too much.
Also, don’t give your youngsters a bad impression of work. Make sure the message comes across loud and simple – that it’s not just about the cash in your wallet; rather, say that you’re fortunate to be able to make money doing what you like, or that benefits people.
Being a positive role model is the best way to educate kids about money. If children see you spending carefully, they will be more likely to follow your example later in their lives. While you’re with your child in the supermarket, recruit his/her support to compare the prices of different goods (for example, brand name versus store label, or promotional item versus regularly priced items).
When their math skills grow, teach the, how unit pricing works, and she can see that when you shop in bulk, you get a better price per unit. It’s also always smart to let them understand that heavily-advertised goods cost more.
Speak to your child about the budgeting idea and explain to them there are restrictions to spend. Explain that your money goes to pay for all the things you need (the mortgage, food, a car) as well as some of the stuff you want (holidays, restaurant dinners, a flat-screen TV).
The first step in building financial consistency is to differentiate between needs and wants. You should even involve your child In a basic budgeting exercise. For example, when planning a birthday party, give your child a calculator and let him figure out how you can spend, say $100. This will help him understand that there are always trade-offs when it comes to money.
When you’re using your credit card, don’t make kids believe you’re spending money that you don’t really have, even if that’s the reality. Explain then that credit cards are more convenient than cash, so even when the bill for the credit card arrives at the end of the month, you need to have the funds to cover the bill.
Tell them that the bank will lend you the money if you are unable to cover the bill, but when it does, you’ll have to pay a lot more back. This is a way to show children that items end up costing even more if you have to borrow money to pay for them.
Your child is now ready to go past the piggy bank stage, so you should take them with you to open them a current account that they will be able to access when they are older. Encourage them to understand their money, and perhaps even open a savings account that is linked to their current account, so that they can put away a portion of their allowance and any gift money she receives.
Show your child their bank statement at the end of each month and inform him about compounding interest. This will help him see the benefit of putting away money and hopefully set him on the road to a sound financial future.