It is important to start talking to your children about money as soon as they can count and understand the concept of money.
Take them grocery shopping
The easiest way to make your children aware of finances is by including them in discussions. Your weekly trip to get groceries is a great starting point.
Even a grade one or two child can be made aware of the price difference between buying two different chocolate bars. You can tailor this lesson to the child’s age. Senior primary children can take charge of the grocery list and learn how to select items while adding up the costs. An older, secondary school child can be given a budget to carry out the grocery shopping and then tasked with making sure that they select the items on the grocery list while staying within the given budget. This can also help with the habit children have of putting things in the trolley that are not on the list.
Include them in discussions
Encouraging your children to ask questions will allow them to see you making financial choices. If you need to buy a car, include them in the details of your decision-making process. Everything from what you need to buy a car, how much of a deposit you choose to put down and what factors go into choosing a car that is appropriately priced for you – these are all valuable financial life lessons that your child will carry forward when they need to buy a car one day.
Reward a savings mindset
In an instant gratification society, the concept of saving and being rewarded by earning interest on your money may seem difficult to communicate to a child. However, it doesn’t have to be complicated. In the sixties, a psychology professor (Walter Mischel) introduced the marshmallow experiment. Children between the ages of three and five were left alone in a room with two marshmallows. Each child was told that they could eat one marshmallow immediately, but if they were able to wait until an adult returned to the room, they could have both marshmallows.
Follow up research in their adulthood showed that children who were able to delay gratification performed better in high school and were later able to incorporate a savings mindset when managing their money. You can teach your children about the concept of interest using their pocket money or allowance. For example, if they spend their allowance immediately, it’s gone. You can tell them that if they save it for a month, you will pay them a small form of interest. The amounts would be discretionary according to your household budget, but this means you can encourage them to save their money with a little reward.
Talk to them about budgets
Too many parents often fob their children’s demands off with a simple “We can’t afford it”. This may be true, but it would be more beneficial to sit your child down and explain to them what a budget is. Teach them to live within their means by showing them how to draw up a budget and that expenses should never exceed your income. A child who has been taught how to budget as well as the value of saving is less likely to demand big-ticket purchases impulsively.
Use their allowance to teach them money management
While conversation and education about money is vital, practical application of these skills also plays a big role when teaching your children how to save. For example, you can give them an allowance to buy their snacks for each week. Encourage them to become aware of the costs of each item, planning their snacks for the week and ensuring those snacks last the whole week. They will quickly learn how to manage a budget as well as differentiating between needs and wants.
INFO BOX: PRACTICAL APPLICATIONS OF MONEY LESSONS
- Include your children in the financial aspect of planning their birthday party.
- Take them along on grocery shopping trips and get them involved.
- Allow them the freedom to manage their allowances. Sometimes they will get it wrong, but that’s how they will learn.
- Encourage them to ask questions and dispel the idea that money is not to be discussed.