One of the most valuable lessons you can teach your child to prepare them for adult life is how to manage their money. While it may seem unnecessary, children are more likely to become money-savvy if they are taught about money in their early childhood, as this is a critical stage in their development.
It might seem like a big undertaking, but there are a number of simple ways to start a conversation with your child about money and start teaching them the basics. Let’s take a look at a few ways you can teach your children about money.
Set a positive example
According to a study by the University of Cambridge, money habits in children are usually formed by the time they reach age seven. A significant part of a child’s learning process is imitation, so if you have bad money habits, they’re likely to follow suit.
Every time you argue with your spouse or splash the cash while shopping, make no mistake, your child is watching and learning from you. If you practice healthy money habits, they’ll pick up on them and behave similarly as they grow older.
Familiarise them with money
As much as you may want to shield your children from the harsh realities of adult life, incorporating money into your child’s day-to-day activities will help them to respect and understand money and its uses later on.
Begin by allowing your child to touch and look at coins, notes, and bank cards so that they recognise them as a part of everyday life. It can be helpful to get your child involved when you’re paying with cash when out shopping so that they can understand what it’s used for. For older children, ask them to count your cash to see if you have the right change before paying, but for younger kids, simply allowing them to hand over the cash to the cashier can be helpful to familiarise them with the process.
One way to teach slightly older children about the value of money is to offer to pay them an allowance if they complete a certain number of tasks around the house, such as emptying the dishwasher or cleaning their room. This way, you avoid spoiling your kids and instead teach them about the fact that money does not grow on trees and will not simply be handed over to them. Money is earned and it takes hard work to achieve it!
Store their money in a clear jar
It can be difficult for children to understand the value of saving without being able to visualise it, so instead of storing their money in a piggy bank, give your children a clear jar to store their money in so that they can see it grow gradually as they save more, and become empty when they spend it. With any luck, they’ll be motivated to keep topping up the jar and watching it fill up!
Teach them about the importance of opportunity cost
If your child has earned some money from you for completing their assigned chores, take them shopping and tell them that they are able to buy whatever they want with the money you have given them; no more and no less.
Very quickly, your child will begin to understand how spending money involves weighing decisions and understanding the outcome of their choices. Make it clear that if they wish to buy one thing, they will not have enough money to purchase something else, so they must weigh up the pros and cons of each.
Teach them about the consequences of impulse buying
When you take your children out shopping, you have probably experienced them grabbing something from a shop and begging you to buy it for them. Instead of giving in and teaching them that you are their personal money tree, tell them that they can buy the item themselves with their hard-earned cash.
Make sure to warn them, however, that if they purchase an item based on an impulsive decision, they will not be able to buy something else that catches their eye later in the day. When their money is gone, it’s gone!
If your child is slightly older and is earning more pocket money, advise them to wait a day until they decide to make a pricier purchase so that they’re not driven by impulse. If you return to the shops the next day, they’ll likely have more of a level head and can make an informed decision about their purchase.
Teaching your child about money early in their development is key to ensuring that they develop healthy spending habits as they grow older.