Money and finances present so many decision making situations to a person’s day. Educating, motivating and empowering your children to become regular savers and mini investors is vital in teaching the ‘value of a dollar’ as your parents did to you and their parents before.
There are simple ways to introduce finance to your children at an early age which will undoubtedly help their economic development. Here are 8 simple ways to help educate children about managing money:
1. Can your child count?
Introduce them to counting by using money. Observation and repetition are two proven ways children learn in their early years. Continuing money counting exercises with your children will reinforce the importance.
2. Communicate regularly with your children about finances
Schedule a regular time for family discussions about finances. This is especially helpful to younger children, as it can be the time when you pay their pocket money or interest on their savings at home. Talking about the 3 “How’s”: How to save it, how to grow it, and most importantly, how to spend it wisely, is also vital.
3. Teach them how to set financial goals
A piece of advice I was once given was ‘You can never reach a goal you don’t set’. New toys and theme park adventures are perfect for goal-setting exercises and carry much value for kids!. Doing this demonstrates the importance of the time and effort it takes to reach goals as well as the sense of achievement in attaining them.
4. Talk about the value of saving versus spending
Explain and work through how money saved earns interest. You can get your children to help calculate the interest on their savings on a monthly basis. This way they can see for themselves how fast money accumulates through the power of compound interest.
5. If you give your children pocket money, give them the money in smaller denominations
If the weekly amount is $10, think about giving them a $5 note and the rest in coins. This will encourage at least some (hopefully the $5 note) to be set aside into the ‘savings’ tin. This will show your kids how a little bit now can grow to a lot down the track! (Saving $5 a week at 6 percent interest compounded quarterly will total about $266 after a year, $1,503 after 5 years, and $3,527 after 10 years!)
6. Make a trip to the bank and get your children to open their own savings account
Opening an account and understanding the mechanics of a bank will stay with your children forever. Having their own account can also encourage further saving and having an account book and a running tally will help your children see their money grow.
7. When the time comes, allow your children to make choices around spending
Your children will learn from their spending choices, whether this is a positive or negative experience. It is up to you to discuss the pros and cons of the spending decision and ask what they could have done differently.
8. Introduce the implications of borrowing and paying interest early
If your children ask you for an advancement on their pocket money or a loan for a new skateboard, sit down and explain how you are going to charge an interest rate (albeit small) on the amount. They will learn quickly how borrowing is not free and may significantly increase the end price of what they wish to purchase.
Kids are never too young to start learning money lessons. The more opportunities they have to work with money and manage it, the more money savvy they will be as adults and hopefully the less reliant they will be on you!