Money has always been a tough topic to talk about.
It’s even harder to talk about it with your kids.
However, it is important for you to talk about it with your kids so they can be financially responsible – even if they are just five years old.
According to a research by University of Michigan, money habits form as early as five years old.
The Importance of Teaching Kids Financial Literacy
Karen Williams, a child development expert shared a few reasons how teaching financial literacy to kids help, including:
1. Awareness About Money
Educating them about financial literacy means that your child becomes comfortable with the idea of how money works.
They would also understand the various financial concepts such as currency notes, coins, spending and earning.
2. Teaching Them About Needs and Wants
With financial literacy, you can introduce your child to concept of ‘want’ and ‘need’.
A need is a day-to-day requirement, while a want is something you can own.
3. Teaching Them About Mindful Spending
This is also co-relates to needs and wants.
Budgeting is an essential tool to having a better financial understanding.
When your child understands how you make a budget each month, where you spend your money and you each month’s spending impacts, they would gain first-hand experience.
4. Saving and Investment
Your child would learn how to save and the different ways to invest their money in.
Depending on their age, the idea of investment can be introduced.
When you share about how you save money in different ways, they would have a real-life understanding on how it works.
They’d learn about the concepts of credit cards, debit cards, net banking, and loans.
5. Gratitude Matters
An important thing associated with money is how we adults speak about it.
When parents are thankful, children would also soak it up.
Gratitude can be simple things such as food, clothing and everything else.
Raising Kids to be Financially Responsible
There are plenty of ways to raise your kids to be financially responsible.
Here are seven way you can try to teach your children about financial awareness:
1. Lead by Example
Parents are a child’s first educator.
A research shows how parents influence how a child behaves.
Educating kids about finance by showing them how you spend your own money can be the first line of knowledge to give them.
2. Teach About Saving, Giving and Spending Wisely
It is important to start educating your child about money management from an early age so that you don’t have to entirely spend your earnings on them.
Give them three different containers labelled with ‘spending’, ‘donating’ and ‘saving’.
This way you can teach them about what they can do with the money they earned.
3. Teach Kids to Track Their Expenses
It’s important that you make your child understand to track their spendings.
Teaching them about this would bring awareness about their spending in case they’re spending more than they’re supposed to save.
Financial literacy is important, so, educating them about their financial condition and pinpoint their overspending.
This way, you can show them ways and tips on how they can curb their spending.
4. Setting Aside 10 Percent for Uncertainties
Teach them about the importance of savings and how they can come to the rescue during emergencies.
Make them understand that life is often unpredictable and no one knows what the future holds for them.
By teaching them this, they would late be more prepared when facing a situation they didn’t expect to experience.
5. Let Them Learn from Their Mistakes
Of course, not everything is successful from the get-go.
But it’s important to remember that it’s okay to let them learn from their own mistakes.
Let them realise that their mistakes would lead to consequences.
This would teach them to make smarter financial decisions in the future.
6. Teach Your Child to Compromise
If your child wants something, they must go through something else.
Give them choices and compromises if they want something.
There’s a cost for everything and if they truly want something, can they tell whether the item is worth spending or not?
If they really want the item, you can make a compromise like opting for a different kind of dinner that maybe they won’t prefer as they already got the item they needed.
7. The ’70-20-10′ Plan
The ’70-20-10′ plan is a budget guideline that divides earning into three categories:
- monthly spending
- saving
- debt repayment and donating
Tell them that 70% of their earnings goes to their wants and needs, such as snacks and toys.
Then, 20% is set aside for savings and investments.
This can be their emergency fund or for their college savings.
The other 10% of their income goes to donating.
As your child doesn’t usually have debts, their 10% can go to donations.
It’s always nice for you to teach kids young that sometimes it’s better to give than receive.
Ensure Your Kids Have a Financially Stable Life
The best way to do that is to have them have that financial literacy early on.
At least, let them learn the basics of it and then it continues on from there.
Do you have your own tips to raise financially responsible kids? If so, do share with us and other parents so they know how to raise financially responsible kids themselves.
Disclaimer: The information provided in this article is for informational purposes only and should not be considered as medical advice from Motherhood. For any health-related concerns, it is advisable to consult with a qualified healthcare professional or medical practitioner.
For more insightful stories and fun recipes, stay tuned to Motherhood Story!