Our children certainly know how to spend their money on the toys they like and on the food they savour. However, do they know how to save and budget appropriately?
Learning why and how to save, budget and invest money should start as early as possible in every household. Not only will it help everyone learn the importance of preparing for any unexpected life events, but good financial habits will also enable us to enjoy our lives while securing our family’s future.
In this episode of our Money-Smart Mama series, we are here with Helwa Sofni, a licensed financial planner and a mother of three. We are going to walk you through what financial literacy in children is all about and how you can cultivate healthy money habits among your children from a young age.
Instilling Financial Literacy in Children
Q1: What does financial literacy in children actually mean?
Financial literacy in children begins with an understanding about the importance of saving.
Here’s why.
To start with, our children can save their money when they receive money packets during festive seasons such as Chinese New Year and Hari Raya.
To make the case to our children, we need to share the reason why it is important to save up. Once our children understand why they must start saving, they would not think of money as a means to get whatever they want or like. By understanding the concept of delayed gratification, they would not give in easily to their desires. They would be able to start small and be consistent in saving for other goals.
On top of this, it is good to guide our children on how to keep track of their money inflows and outflows through a journal. With this, they would be able to keep track of where their money goes.
Now, it is equally important for us to share with our children on how we actually earn money, whether it is through working, starting a business or investing. They need to learn about the value of money through hard work and effort so they can appreciate it.
Another issue to highlight is on the means of earning money. It must be ethical whereby no cheating or stealing is involved. Additionally, they should learn that money can be used to help others.
Whether it is to help their siblings, family members, community, animals or even the planet, we can encourage them to use their money for good deeds.
And instilling financial literacy in children all comes down to being practical. We should be able to demonstrate and lead by example.
Q2: How important is it to teach our children about finances?
Undoubtedly, having our children learn about finances and money at a very young age is important. This is to ensure that they have cultivated the right habit and awareness on saving, budgeting, protecting, growing and managing money from a young age.
We can start off with teaching about budgeting and allocating money on needs, wants and nice-to-haves. To do this, we should instil confidence in our children to make their own financial decisions. Simply ask them to:
Think before you spend.
Get them to ask themselves whether it is a need, a want or a nice-to-have before they purchase an item. They can then avoid overspending on trivial items in life.
The next point to discuss with our children is about wastage. Wastage from food, water or electricity should be avoided at all costs. Children need to learn to be grateful for the money they have and the blessings they have in abundance.
Q3: How can parents teach children to distinguish between needs and wants?
We can start with showing some practical examples through daily life expenses. Ranging from the types of transportation, gadget, eating, hobbies and entertainment, they can look into each aspect by reviewing their journals at the end of each month.
With this, they will be able to realise what they don’t really need. They will reflect through questions such as:
Was the item really worth what I spent?
They may then look into where they can cut down their expenses for more savings.
Talking about saving, we can start by giving our children a piggy bank or a simple clear mason jar. By creating the visual incentive for our children to see how much they have saved, they will be more motivated to continue saving.
To ensure their motivation lasts, we can provide our children some incentives or commission to earn more money for their monthly savings. For instance, they can sell reusable goods or help with the household chores.
As time passes, we can help our children transfer their savings into their bank or investment accounts. It is essential to show them their account status so that they can see their accumulated money and how much it has grown.
More importantly, they need to understand that saving money is about protecting ourselves from any unexpected expenses.
Q4: How do we start the conversation with our children on budgeting?
Learning about budgeting is essential so that we do not overspend our money. By knowing how to plan and allocate your money wisely, our children will learn to ascertain which item has a better value for money.
Thus, we should sit down and start the conversation with our children by explaining the benefits of sticking to their budget. Our children will learn that budgeting can help them to save and enjoy more later.
Q5: Should we let our children spend their money on their wants?
The answer is certainly a big YES, but with a set limit. As long as they stick to their budget planning, spending on wants can be a good source of motivation for them to keep saving their money.
Before that, we need to ensure that our children understand the reason why we are saving and budgeting in the first place. They will learn that some money can be used to celebrate and have fun with others after they have done their budgeting and saving.
Last but not least, they need to be clear about opportunity cost. This is where if they choose to have something, they will have to give up on something else.
Secure Your Children’s Financial Future Early with AIA Malaysia
It is never too early to start when it comes to teaching our children about financial literacy. Once our children have cultivated the right money habits, preferably from childhood, they can grow up to be financially smart adults. They will be able to enjoy financial freedom whilst thriving in their career, business or family life.
As parents, we can also play an important part in building our children’s financial security besides instilling financial literacy in them. With AIA’s new savings and protection plan, A-Life Wealth Treasure, you can adequately support your children as they journey through life.
Being an investment-linked plan, A-Life Wealth Treasure also provides high protection for your child, starting at a minimum coverage amount of RM200,000. Here’s an extra perk for those of you who start saving early for your children: You can be rewarded with up to an additional 12% of your children’s coverage amount.
You can also unlock additional benefits for your child when you sign up for A-Life Wealth Treasure, attach the A-Plus ParentCare plan rider and become an active AIA Vitality member. By making healthy choices for your life, you can unlock cash rewards for your children of up to 0.5% of the rider’s coverage amount.
Head over to AIA’s official website for more information on AIA’s comprehensive Total Health and Wealth Solution for you and your child.
If you wish to know more on family financial management and money-saving tips from our group of experts, stay tuned to our next episode of Money-Smart Mama!
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