School teaches children essential skills that they need for their adult lives, but what they don’t learn is how to be financially responsible. This is usually left to parents, but many parents are not comfortable or confident talking about money. Monty Stephenson, financial executive and COO of bsmart, shares these tips on teaching children how to be financially savvy.
The earlier the better
Children can start forming good money habits from a surprisingly young age. So, start early by getting your child to count money and then progress to more complicated money concepts as they get older. Use stories to get your message across in a more fun and understandable way.
Be a good example
Showing is better than telling, which is why it’s essential that you practise the same healthy money habits that you are trying to impart. Children learn better by observing you and repeating your actions, so be mindful of what you are spending and what you are saving.
As we move to a more cashless society, paying for goods with notes and coins can be a challenge, however this visual action will help children make the essential connection between cash and paying for items. In addition, when you show your child how to deposit money into an ATM, they learn that money should also go in, not just come out.
Many opportunities can be turned into lessons, even regular tasks like shopping for groceries. Let them get involved throughout the process, from creating the shopping list with you, to paying at the till. To help your child get a better understanding of costs, compare an item in your trolley to something they own – like a video game.
Needs and wants
The concept of necessary spending versus spending for fun is one for older children. To help them understand the difference, use a practical example: they need new running shoes for school but they want a brand that is trendy – and therefore expensive.
Teach your child how to save by helping them set a goal, and then working out what they need to save on a weekly basis to achieve this goal. Start with something small, especially for younger children. When they reach their savings amount, let them perform the action of buying the item. If it costs more than they have saved, resist the urge to contribute, rather encourage them to save more or buy an item that they can afford.
Pocket money is a good way to build financial awareness, as the child will be managing their own funds. For younger children, a glass jar works best as they can see their savings grow, while older children can open a bank account.
When it comes to how your child wants to spend their savings – step back and let them decide. The important lesson for them to learn is that money has a value and after you spend it, it’s gone. Older children need to figure out that you first buy what is important and then you can look at the nice-to-haves.
Even if you can see that your child is making an error of judgement, let it happen. Rather teach the lesson now, when the consequences are small, compared to when they are an adult and the mistake could impact something important like a credit score.
The importance of saving
When you explain how to manage money, make the savings lessons age appropriate. For older children, help them understand how important it is to save, for both short-term and long-term goals, and explain how interest works and the difference between credit and debit cards.
“Parents need to provide their children with the necessary financial skills from early on, so that they build on this foundation and become financially smart adults who spend smart, save smart and live smart.”