Learning money management skills is an invaluable lesson for your children. It will serve them their entire lives and give them a tangible pathway to attaining their dreams.
Understanding that resources are limited, and therefore need to be properly managed, is key to teaching children money management. Not to the point that there is a poverty mind set. Just to the point where there is a need and a want for more.
Teaching money management to kids can be a complex task.
Practically, budgeting and saving are straightforward and relatively easy to explain to children and to put in place. However leading by example and compartmentalising the psychological aspect of money, abundance, lack and self-worth out of the lessons can be the tricky part.
So on one hand, there are simple skills and steps that form the basics of money management and can be taught to kids as young as 3. I’ve outlined these below.
On the other hand, many parents have strong emotional and mental drivers to provide everything they can for their children.
And the true starting place for teaching children how to manage their finances is demystifying the proverbial silver platter. Only 1% of the people on the planet get everything handing to them on a silver platter. The remaining 99% of us need to work for what we want and accept that limited resources is a reality of life.
So create the motivation for your children to learn by limiting their resources. Let them realise that they if they want a particular toy, game or experience then they won’t be able to have the other toy that they may want. This helps to encourages proactivity when it comes to saving, planning and earning.
Again it is important that lack is not emphasised to the point of creating a poverty mindset. A tricky balance to find but certainly one worth striving for as effective budgeting and saving could be the difference between a life of struggle and a life of success for your children.
So what are the practical steps in teaching children money management.
1.Give Your Kids Money to Manage:
An allowance is good way to start with younger children as it becomes their first source of income. You can tie the allowance to chores (representing how adults need to work to earn money) or give it out freely. Whatever you decide, making sure your child has his or her own money is the first step toward teaching money management.
2. Teach Them Budgeting Basics
When children get cash of their own, they need to decide how to spend it — and that’s the time to talk about savings. Let’s say your child has an allowance of $5 per week, but wants to buy a toy that costs $30. While going out and buying that toy immediately isn’t possible, your kid can set aside some money every week, then buy the toy later. That’s the value of a savings account in a nutshell.
3. Help Children Understand That Everything Costs Money
Your children need to know the value of their allowance compared to the value of the things they’d like to buy. When they want a new toy, point out the cost and remind them how much they have to spend. (This is a good opportunity to encourage kids to save money.)
When they’re buying something with their allowance, make the process visual: Take the money from their jar, bring it to the store and hand it to the cashier. They will clearly see their amount of money shrink, though they will get a toy (or whatever else they want) in return.
4. Show Them How to Shop Smart
While everything costs money, some options cost less. From buying generic products to doing cost comparisons, adults try to make their budgets stretch as far as possible — and you can teach your kids to do the same with their allowances.
5. Let Them Make Decisions (and Mistakes)
Offer advice, but don’t dictate what your children do with their money; allow them to make their own spending decisions. While they’re likely to make mistakes along the way, it’s better to make those mistakes — and learn from them — now rather than later.
6. Set a Good Financial Example
Your kids watch what you do, so practise the same smart financial habits you’re teaching them. One way to teach your children about finance is to involve them in your own financial decisions, which gives them context for the choices they see you making. For example, if you tell them you can’t afford something they want, then turn around and buy a new television, that sends mixed signals. But if they know you’ve been saving up for a new television — that the entire family can enjoy — they’re more likely to understand.