Before you start:
If your children are still too young to understand handling money (probably under 4 years, but you know your own child best), begin by teaching them that they won’t be rewarded with “wants” by nagging, whining and crying. Say no, and only reward good behaviour with treats, when it fits in your budget that is. Another initial lesson for the younger set is learning patience and delayed gratification – these are the building blocks for controlling impulsive purchases and saving for special things. For example, tell your child she can have a cookie after she and everyone else has finished eating dinner. When you give her the cookie, tell her that if she waits two minutes before eating it, she can have two cookies. She will learn that patience can bring greater rewards.
If your kids are 4 years old and above, they should be able to start learning how to handle money for themselves.
Before teaching your kids about money, educate yourself on the lessons you want your children to learn. Then, practice what you preach and be an example for them.
Take baby steps, teaching one lesson at a time so they are able to absorb it and not feel overwhelmed. Find teachable moments, and involve them in family financial decisions and tasks.
Decide what the child’s “needs” are versus “wants”. You may decide that school supplies and seasonal clothing are needs, while toys, treats, fashion items and gadgets are wants, for example. Only buy your kids “want” items as presents for birthdays and holidays. If you would still like to buy them an occasional treat, let them shop around to practice decision making and delaying gratification for choosing their treat.
Three First Steps to Teaching Your Kids About Money:
- Give them money. Practice makes perfect – allow your kids to use real money in the real world and make their own decisions and mistakes to learn from. You may want to give your kids a weekly allowance, while expecting them to chip in with household chores, or you may want to pay them for each chore or good behaviour they achieve. There are arguments for both – decide which is best for your family. Note: your child’s allowance/earnings should not be an additional expense to your budget, rather it should be coming from the money you already allocate to spend on your child. How much you give your child depends on your family’s budget and your child’s age, but it needn’t be a lot of money, at least to begin with.
- Divvy it up: some money to pay for the child’s wants (treat food, clothes, toys); some money to put into savings; and some money to give for charity and gifts. If your child’s allowance is $3, you could allocate $1 to each category for example. Help them make a very simple budget to decide where their money will go.
- Make savings goals for special wants. If your child wants a toy or gadget, teach them to shop around for best prices, and then work out a savings plan to save for that item. If the item costs $30, that would mean saving $10/month for three months, or $5/month for six months, for example. For younger children, set up savings goals that are shorter term, perhaps no longer than a month.
7 Money Lessons, when your child is ready:
- Show your child that cutting expenses and frivolous spending means saving faster for the important things. Mention that they could not spend $5 on ice cream, for example, and instead put that money into their savings to buy that special item sooner. Give your child guidance, but allow them to make their own decisions and mistakes to learn from.
- Impulse buying and consumerism – teach your child to wait and think about purchases, and not to try to keep up with others or bow to peer pressure. You can be the role model for this lesson by not making impulse purchases in front of your child, and explaining to them that you want to save your money for a vacation or something special instead.
- Advertising – teach your kids what advertising is designed to do and why to be aware of it. Advertising manipulates your emotions to sell you something and part you from your money, so your kids should recognize the purpose of advertising and its biased nature, in order to see it with a reserved eye.
- Explore ways that your child can earn extra money to reach their goals faster. Can they do tasks for neighbours or even get a part time job? Judge how motivated your child is, and encourage them to work harder to reach their financial goals.
- Investing – show them how their money can make more money with investment interest. If your child is saving up for a larger, longer-term goal, get them a high-interest savings account or term deposit to show them how money can grow on its own with the right tools and patience.
- Paying the bills – teach your children the discipline of paying a bill by the deadline, by giving them a monthly bill to be responsible for. If they have their own cell phone bill, this would be perfect. Late fees will come out of their own money and missed payments could cut off their phone, so they will learn to pay it on time. Or assign some other household bill that the child is responsible to pay from the household budget. If you are worried about this, monitor the account to make sure your child is paying the bill.
- Teach them about borrowing money and the dangers of debt. Talk about credit card and loan interest rates and fees. Borrowing money is renting money, and that means paying more than saving to buy the things you need and want. Emphasize the value of save-now-buy-later. Some parents give their teens their own credit card, and while that teaches them (hopefully) to pay the bill on time and spend what they can afford, it still does not promote the saving before spending habit that is so important to avoid a lifetime of debt. As soon as graduating high school, your child will likely be looking at student loans and be bombarded with credit card offers, so make sure they are prepared with the knowledge of these products and appropriate caution.