Money can’t buy love but it buys almost everything else. Financial responsibility is not learnt in a day and therefore, children should be introduced to the concept and value of money as early as five years of age. It is not a topic which the parents should shy away from, irrespective of their current financial situation.
Here are some simple and efficient ways to teach the value of money to children:
- Money doesn’t grow on trees: Younger children do not know how their parents buy them the things they do. You can start teaching them the concept of money and what it can buy. Tell them how many hours of work you put in to earn a certain amount of money. Explain to them that if we finish the money we have earned in a month, there won’t be any more to spend. Money is not infinite.
- Allowance: One of the best ways to teach financial responsibility is by giving your child a weekly or monthly allowance. An allowance compels a child to think, plan and decide what to spend on and how much to save. It will introduce the concept of short-term and long-term saving. Mistakes are imperative for learning. Do not pay children for doing regular household chores because they must realise it is their responsibility to share household chores as a family member. However, any other special chore can be paid to teach the relationship between work and money.
- The philanthropist: You can encourage your child to put aside a certain amount of money to contribute to society at large—calamities and charities. A generation of children who can and will contribute to the world will be special indeed.
- The little entrepreneur: If your child has a special goal like building a robot or enrolling for an educational but expensive camp, help him find ways to earn the required funds. Help does not mean you create redundant jobs so he meets the goal. Let him look for work with you or at a neighbour’s. Help him reach a fair pay offer. This is important learning in finances and in striving towards a goal.
- Discuss money: If you have a new expense added to a tight budget, share the basic details with your child. Tell her how you are going to cut down on an existing expense to accommodate a new necessary expense. If you get a salary hike, share how that will impact the family budget. However, you mustn’t put the burden of a financial crisis on a child.
- Say no: The market is flooded with the latest and the most expensive toys for kids. Naturally, your child will demand one of those fancy items. Resist the urge to fulfil every demand because it will teach him that money comes easy. If your child wants an expensive toy, buy it if you can afford it and inform him he won’t get another one for the next six months as your budget doesn’t allow it. Better still, if your child has an allowance, motivate him to save so he can buy the toy himself. This will teach him to delay gratification and give him the thrill of saving and buying with his own efforts.
- Need or want? In a child’s mind, a want and a need usually mean the same thing. A parent should enlighten the child on the difference between the two. Once it is established whether it is a wish/want or a need, a child can make better spending decisions. You can also talk about utility bills with her. Things like water and electricity are taken for granted. Teach your child these are necessities that cost money. Ask her how she can save more on these bills. She can, for instance, turn off the lights she doesn’t need. The bombardment of children’s channels with advertisements also throws a family’s spending budget in disarray. There are many of us adults today who are lured by ads into buying unnecessary products. So help your child evaluate these ads and reinforce the concept of need and want.
- Shopping budget: Take your little one along when you go shopping for household items. Share your list of items to be bought, ask her to compare prices and find the most economical item. This will teach her the value of money, and spending it with a lot of thought.
- Savings account: It is never too late to open a child’s savings account. It not only helps children save but also encourages goal setting. Research says that having a saving can affect the way a child thinks about his future. Also, a child with a savings account is more likely to accumulate more assets and invest in stocks as an adult as compared to a child without a savings account. Children can also be taught about compound interest and its impact on saving.
- Debt and credit: If your older child wants that new Star Wars lightsaber and he doesn’t have enough savings for it, tell him you will lend him the money to buy it and he has to return it to you. Take whatever saving he does have and tell him you will be deducting the remaining from his future allowance until the debt is paid. This will teach him what credit and debit entail. Eventually, you can explain the concept of interest on credit.
In today’s world, money can cause a lot of stress and/or happiness. A child who understands the value of money early in life will have better savings, will make better spending decisions and will have astute financial skills. We, parents, can’t give our children all the money they will ever need but we can definitely equip them to face all financial challenges as an adult.
Suggested reading: 5 ways to instil generosity in kids and 17 Fun Money Activities to Help Kids Understand Coins’ Values