Money isn’t evil. It’s only when it’s used in the wrong way that it becomes so. It is definitely important for us to teach our kids how to manage their money before they go down the wrong path – spending expeditiously and saving nothing,
We know money is usually regarded as an “adult thing.” But, in reality, proper financial literacy starts at childhood. Kids who have already been exposed to such a concept at a young age have a much higher chance of setting proper financial decisions later in life.
Why Your Child Should Be Financially Literate
We live in a world where consumerism is at an all-time high. Globally, people under the middle-class category have spending that is expected to grow to $64 trillion by 2030! People buy and buy and buy to get a sense of satisfaction. Kids are not exempt from this.
Once your child goes to school, it’s most likely that you’ll give them an allowance. You wouldn’t want to give them some amount of money and then leave them to their own devices. They need to be guided on how to save and spend that moolah.
But first, what is financial literacy? It’s not just knowing when to spend on particular things. Being financially literate means being proactive and intentional about managing money. University students and adults can learn this through various academic sources, classes, and even hiring a coach. Unfortunately, kids are often overlooked when it comes to this skill.
But don’t worry because you can start off with some courses you can join. For instance, the Institute For Financial Literacy is offering a workshop called “Give Your Child Money Sense” whose aim is to teach parents with young kids how to impart financial literacy. You and your child can also download apps such as Savings Spree, Flocabulary, and Bankaroo to keep track and plan out your finances!
Having this knowledge has many benefits that last a lifetime. Your kids can make smart decisions when it comes to money and they will also be prepared to take on different financial uncertainties in the future.
How To Teach Money Management To Kids
1. Teach The Difference Between Wants And Needs
Kids want a lot of things, but most of the time they don’t need half of those! When you give them the power to spend their own money without guidance, they’ll most likely end up buying anything and everything they want. Before you know it, you’ll find yourself giving more allowances every week. Because of that, knowing the distinction between their wants and needs is crucial.
2. Understand The Value Of Patience
If they really want to buy something that isn’t a need, they’ll have to save up for it. This has a lot to do with patience. For instance, your kid wants to buy the latest video game to keep up with their friends and all the updates. Unfortunately, they don’t have enough money – for now! Teach them the essence of saving up a portion of their allowance every week or every day. After some time, they’ll be able to make that purchase without needing extra cash from you.
3. Involve Them In Some Financial Decisions
This could be something as mundane as going grocery shopping and buying clothes. When you fill them in on how your budget works for everyday necessities, they’ll have an idea of how to spend and on what. In the example of grocery shopping, tell your kid what your budget is and what you need to buy. Then, go around the grocery store and find the items that can fit in your budget. You can even let them pick an item on their own.
4. Teach Them Compound Interest
Compound interest sounds like something an older child would understand better. But don’t worry, the concept is actually pretty simple. Explain it through an example. If they set aside S$100 every year starting at the age of 14, they’d have around S$23,000 by the time they reach 65 years old. Likewise, if they start later than 14, let’s say 35 years old, they’ll only have S$7,000 by the age of 65.
You can have them use tools such as MoneySense SG for them to know how much they will make in a specific period of time if they earned a particular amount. At first, their goal could be as short as a month. However, as they grow older, they can have long-term goals that could accumulate into something very beneficial in the future.
5. Handle Allowances
How much allowance you give to your child is entirely up to you. However, you must consider several factors. Are they bringing school lunches from home? How old are they? Do they have other commitments outside of schools such as piano classes and the like?
After thinking about all these factors, you must be consistent with how much you give them and when. Being prompt about their allowance will help with the previous points mentioned above – patience, knowing the difference between need and want, saving, and helping with family financial decisions.
Some Tips On Allowances
- Be specific about what their allowance is for.
- Talk to other parents about their kids’ allowances.
- Don’t give them more when they’ve exceeded the spending limit.
- Encourage saving.
- Don’t turn money into a bribe.
- Don’t reduce their allowance as a punishment for misbehaviour.
- Give allowances on a scheduled day.
In A Nutshell…
Money isn’t just a thing for adults and financial literacy certainly doesn’t start at adulthood. In fact, money should be discussed with children at a young age to prepare them for uncertain financial situations in the future.
Your kids will be handling money one way or another. Instead of avoiding the inevitable, let’s guide them in the right financial direction!
How are you helping your child manage their allowances? Share it with us!