Last Updated on June 16, 2022 by Parentology
In today’s capitalistic society, we are constantly bombarded with messages telling us to buy this and that. It can be tough to resist the temptation, especially when our kids are involved. But it’s important to remember that money doesn’t grow on trees. If we want our children to be responsible with money, we need to teach them about its value and model good financial behaviour.
As a parent, one of the best things you can do for your child is to teach him about money. Having good financial habits such as setting a budget, tracking expenses, and living within one’s means can benefit your little one now and in the future.
Importance Of Teaching Your Child About Money
Money is a major part of our lives and it’s important for children to understand its value. That’s why it’s so important to educate your child about money from an early age. Here are two reasons why:
- Money is a major part of our lives: From food to fuel and clothes to cars, we use money to buy the things we need and want as well as to pay for services. Teaching your children about money will help them learn about its importance in our society and give them a better understanding of how to use money wisely.
- Children need to know how to save: One of the most important things you can teach your child about money is how to save it. Helping them develop good saving habits at an early age will set them up for future success. Unfortunately, many parents don’t realise the importance of instilling their children these good financial habits until it’s too late. By then, their kids have already developed bad spending habits that are difficult to break. This is why the sooner you start, the better.
Money management is a critical life skill that every parent should teach their child. From explaining the different concepts about money to saving for specific goals, here are five simple steps on how to help your child be on his way to financial success.
How To Start Teaching Your Child About Money Management
1. Introduce different notes and coins
A great way to start teaching your child about the concept of money is to introduce physical cash to him. Bring out all the notes and coins you have – those $2, $5, $10, $50, and $100 bills as well as 10¢, 20¢, 50¢, and $1 coins.
Show and explain to your child about the different notes and coins and what they can be used for. Make it fun through simple everyday activities such as using the cash to order a meal in the hawker centre or buy an item from a store.
2. Explain the different concepts about money
After introducing the different forms of physical cash, you should introduce the following financial concepts:
- Spending: Money that is used to buy a certain product or service immediately.
- Saving: Money that can only be used in future, such as for emergency purposes.
- Sharing: Money used for charity to help others, such as donations.
- Investing: Money that can be compounded into a larger sum of money.
You can decide which concepts to introduce first or later, depending on the age of your child. If your child is around two to three years old, consider teaching him about only saving and spending so as not to overwhelm him.
3. Offer a safe place to save
Once your child is familiar with the different cash denominations and the concept of saving, he will need a place to stash his cash. For a younger child, you may give him a clear piggy bank to store his savings. This visual representation lets your little one “see” his efforts of saving.
For an older child, consider opening an account for him. Many banks offer savings accounts specially designed for children, with high interest rates. Head to the bank together whenever there is a new bank transaction so your child can feel more involved in the process.
4. Introduce budgeting and tracking
Make your child take charge of his finances by getting him to track his expenditure and writing down his purchases every day. This can be a real eye-opening experience and allows your child to be aware of what he is spending on; for example those extra nuggets bought at the canteen or the shiny new ruler from the bookstore.
Once he is aware of his spending patterns and the estimated amount he spends every day, week, or month, encourage him to set a budget. Reward your little saver with treats or special privileges whenever he sticks to his budget. However, don’t be afraid to let him stray from the budget and fail occasionally – it’s all part of the learning process.
5. Put everything in action by saving for specific goals
After your child has mastered spending within his budget limits, it’s good to set some savings goals for him to strive towards. Whether he wants a new Paw Patrol toy or to go out on an outing with his friends, he will need to pay for it using his own money. Letting him save for a few months teaches him about delayed gratification and patience. To make the process easier, print and paste a picture of the item your child is saving for to further encourage him.
Do ensure that your child’s goal is attainable within a suitable time frame as the younger he is, the shorter his attention span will be. For example, let your three-year-old save for a week to get an ice cream cone from McDonalds, let your four-year-old save for two weeks to get a Happy Meal, and so on.
Build Your Child’s Financial Foundation Early
When it comes to teaching kids about money, there’s no one right answer. Some parents opt to follow fixed arrangements, while others prefer to adopt more relaxed methods. However, one thing all parents can agree on is that it is never too early to start teaching about the concept of money and responsible money management so as to give their children the best possible start in life.