Did you know that only 24% of millennials have basic financial literacy? Well, that’s what the latest survey from the National Endowment for Financial Education reported. Something must be going really wrong if 76% of people born in the 80s and 90s don’t have a clue when it comes to money matters, and, although it is not the be all and end all of life, money does indeed matter.
Unfortunately, they don’t teach ‘money’ in our schools, so parents must educate their children about these issues. The good news is that you don’t need a university degree in accounting to do this. Rather, you can start training your kids to be responsible with money as soon as they can count by teaching some fundamental habits and lessons that, although simple, will definitely benefit them throughout their lives.
Where money comes from
For many kids, it does seem like money grows on trees. After all, ATM machines look like endless fountains of dollar bills to the eyes of a child. It’s important, then, that they understand that mom and dad’s credit cards are not magical sources of never-ending funds, but there is a process of earning, saving and spending.
Rather than have your children help you do your tax returns, learning about this can be fun with role-play games, especially for toddlers. For example, your little one can set up a pretend restaurant. Help them make and menu and decide on the prices. You can then order something, and pay them in monopoly money or raisins, and then they can decide what to do with the cash they’ve earned.
Working within a budget and saving
Saving and working within budgets are crucial financial skills that even toddlers can start learning. It is important that you guard your kids against the dangers of impulse buying and instant gratification, as these can transfer into huge credit card debts when they grow up. We recommend, therefore, that they get a small amount of pocket money regularly and be encouraged to save. If they want that $100 Lego set, they’ve got to pay for it themselves and thus save up for it.
Start with a classic ‘piggy bank’ for their coins, and then get them a real bank account as soon as they’re old enough. No loans or advances though; they shouldn’t get accustomed to spending what they don’t have.
It is also a good idea for kids to practice dividing their money to different purposes. For example, they can have one pile for saving, one for daily spending and one for charity. This way, they can practice allocating reasonable amounts to each need.
Learning to earn
Give your kids a kick-start into learning to earn through the sweat and effort by paying them small amounts for household chores like vacuuming, cleaning the yard, or washing the car. Also, next time you have a yard sale, get your kids involved and give them some responsibility, if appropriate.
Approaches like this are not only great for helping your child learn to contribute to the household, but they will have to get to grips with the lifelong fact that no one earns anything without putting some effort in.
We want our kids know the value of saving, but we don’t want them to be selfish hoarders like Scrooge McDuck and his tower full of coins. Children should learn of the joy that comes with generosity. Encourage them to use some of the money they are saving to buy presents for others and donate to charity.
You can really lead by example here; for example, next time you have a birthday present to buy, why not involve your child? Let them help you set a budget, pick the present and wrap it. Furthermore, next time you want to make a donation to a worthy cause, why not let your kids decide who?
Give them freedom to make mistakes
While your children are young, we recommend giving them the freedom to spend their money as they like and the space to make mistakes, thus learning that their actions have consequences, sometimes negative. If they’ve made a bad purchase, talk it through and help them understand why it wasn’t a good idea, discussing how they can avoid similar mistakes in the future.
While its always sad to see them disappointed, these mistakes will help them make wiser financial decisions in the future. Plus, it’s better to learn such lessons by wasting a few dollars when young rather than hundreds or thousands of dollars when they are older.
Learning to be financially responsible is a lifelong process which evolves and varies with growth and changing circumstances. By giving your kids a firm foundation in learning to save, budget and learn from their mistakes, you’ll be setting them down the right path to become financially responsible and reliable adults.
Matt Morrisey, Contributor
Matt Morrisey is a former teacher who has travelled all over the world teaching children English, from China to the UK Matt is well known. Matt’s parents are teachers and his only brother works for a children’s charity in UK.
Matt currently writes for buzzparent.com and loves to write about parenting topics ranging from kids’ toys, activities for kids, parenting hacks and lifestyle. He loves remote-control drones and can’t wait until he opens his window to allow a drone to enter with an Amazon package. Not long now.
His work has been read by readers all over the world and features on blogs and websites all over the world. Matt recently decided to go back to university to do his PhD where he looks to continue his career.