Your quality of life largely depends on how financially stable you are which in turn depends on how well you manage your personal finance. Unfortunately, the school curriculum does not teach what personal finance entails. Even when they do, it is just part of a subject taught in one or two semesters.
Teaching children about personal finance is therefore your duty as a parent or guardian. This is beneficial for the children because they don’t just learn the theoretical concepts but also get to see them in practice. Financial literacy therefore becomes a part of their lifestyle way before they start to earn and bear considerable responsibilities.
You can use different tactics to teach your children depending on the relationship you have with them. If, however, you have been struggling on how to teach effectively, here are a few pointers to guide you.
Parents often feel like matters to do with finance are too complex and stressful for their delicate children. They therefore keep delaying financial lessons for as long as possible. This only makes it harder.
Children as young as four years old can comprehend the concept of the Tooth Fairy so that is a good age to introduce them to financial practices. Simple acts like watching you pay the cashier in the local store are enough to teach them the exchange of money for goods. You can also include fun activities such as playing Pretend Store.
Starting to teach the children about finances early makes subsequent lessons easier since you will be building up on what you know they know. If you start later in life you might have to make some assumptions on what they know and what they don’t.
Teach them about earning
After learning the purchasing power of money, the child needs to know that the money doesn’t just appear in your wallet. Teach them about earning by paying them allowances for doing specific chores in the house. Not all chores, however, should earn an allowance as this may hinder teaching the importance of duty.
The allowances should be paid at regular intervals e.g. weekly, bi-weekly or monthly. Irregular payments make it hard to plan ahead and budget effectively. Salaries and other types of incomes are also paid regularly so you will be preparing them for real life.
It is also important for you to pay them on the due day to teach them about paying bills and owed money in time.
Allow them to also earn money through other avenues such as lemonade stands and after-school jobs if they can balance them with other important things
Teaching children about earning automatically communicates that money is a limited commodity and thus must be utilized with caution. You can therefore introduce them to the concept of budgeting once they have adequate arithmetic knowledge.
Remember you are not just teaching them to make shopping lists. They are learning how to differentiate between needs and wants and to prioritize them accordingly. This is also the right time to guide them not to let external factors such as peer pressure or offers persuade them to make purchases they don’t need.
Make the first few budgets together then let them do it by themselves when they prove sufficiently adept. Continue to monitor their expenditure to ascertain their discipline in following through with the budget. You can also teach them to do this themselves using ledgers or spreadsheet.
Explain saving and its importance
Kids often think of now and today. Once they get money their first thought is to spend it on snacks or toys. You must therefore explain and demonstrate to them the importance of saving for long term goals rather than pursuing instant gratification.
In the early stages, have the children save at home in their piggy banks. Once they learn about tracking their earnings and expenditure, help them open a savings account. A bank account is better because you can keep track of the savings and the savings earn interest.
Let them bear responsibility for their actions
When teaching the kids about prioritizing the items they spend money on, you may guide them to choose what’s important and what’s not. However, once they have fully grasped the concepts of budgeting and saving, you may monitor them without taking control.
If you realize they have spent money unnecessarily thus fail to meet their saving targets do not give them money to top up. The pain of not affording the trip, toys or whatever else they were saving for will teach them to be more disciplined in future.
In addition, you may take the chance to teach them about handling financial emergencies. For instance, you can top up the savings for them but as credit. Then guide them in making a repayment plan so that you deduct a certain amount from their allowance regularly.
Real life examples
It is important for the children to see that the things you are teaching them are applicable in real life situations. Your family’s finances are the best demonstration for this. If you are saving up to buy a car, tell them about it and update them on the progress. Do the same if the family has to reduce expenses in order to service a credit loan or when faced with a financial emergency.
Such real life demonstrations will ensure the lessons remain a part of their lives long after you have stopped teaching them.
Personal finance is one of the most important things you can teach to your children. It prepares them for a prosperous future and teaches them to how to get themselves out of the rut when things don’t go as planned.
Start teaching them the basics at an early age and progress on to the more complex details as they grow. Use examples in their own life and the family’s finances to demonstrate the applicability of the lessons you teach them.
Above all, remember that you are preparing them for the future so don’t take total control. Allow them to handle their allowances even when they seem to be making a mistake. Don’t shield them from the consequences of their actions but use the mistakes to teach them.