Most people would agree that being money smart is an important life skill. Like most skills worth having, it is not usually gained overnight. The following guidelines can help you encourage your children to manage money well.
5 ways to raise money smart kids
1. Educate children from a young age
Build understanding of money and an appreciation of savings from a young age. Children who understand how to manage money, are much more likely to become financially savvy adults.
“Like many things starting early is the key because financial management is based on good habits,” says children’s money author Cathy McGuane.
Preschoolers can be introduced to basic money concepts. For example, some children enjoy role playing games where they can order and pay at an imaginary restaurant. Children can also be shown coins and dollar notes, which are often more easily understood that the “invisible” money on a bank or credit card.
The basics can be built on as children’s understanding grows. Explain finances and related concepts, when the opportunities arise. For example if you are out shopping point out the benefits of comparing prices and having a budget.
2. Model good habits
Kids often adopt their parents’ habits, whether they are good or bad. One of the best ways to encourage sensible money habits is to adopt them yourself and to talk about what you are doing with your children.
Explain why and how you manage your money. For example, discuss with your children how you have made decisions about insurance or taking out a loan. When required, research the best way to manage your own finances, and show your children you are prepared to check facts and ask questions in order to make the correct decision.
3. Learn though everyday activities
Going shopping, paying bills, saving receipt coupons, or checking bank statements are just some of the every day activities that can be used to discuss managing money.
“Shopping with young children is an excellent learning environment … showing them why you buy things on special, or the per kilogram cost on the labels, is showing them you are looking for value,” says Cathy.
The key is to discuss what you are doing with your children so they understand the benefits of sensible money management.
4. Have a budget and say “no”
Talk to children about the importance of budgeting and demonstrate through your own actions that we can’t always buy what we want.
“Saying ‘no’ shows them that you don’t have a bottomless pit of money and they can’t get everything they ask for,” says Cathy.
If a child really wants something, encourage them to save for it.
Some parents find it useful to demonstrate the benefits of savings and budgeting via a family change jar. The change jar effectively becomes a savings bank. Over time, when enough coins have been added to the jar, there is money to buy a family treat. This can demonstrate the benefits of saving and buying something of value rather than spending loose changes on items of small value. Alternatively, an amount could be given to a charity to demonstrate the value of giving.
It is also important for children to value their money, enabling them to have the motivation to save. “Children should only be paid pocket money after the basics are done and then you can pay them for doing things over and above these jobs like cleaning the family car. Parents do not want to install an entitlement syndrome into the children where they are given money for doing nothing.” says Cathy.