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Explore how you can teach your kids financial literacy right from the start for their overall holistic development.
We’ve all heard the phrase “Money doesn’t grow on trees” when we were young. These words of wisdom were taught to us by our parents and teachers, but our lesson on financial literacy most probably ended there.
Parents teach their children numerous things, whether it’s sharing, riding a bike, cooking or driving, but they seem to miss out on the most important lesson - managing money.
Ignorance is not bliss when it comes to money, and what you don't know might hurt you.
We never received financial education in school, maybe that’s why we never realised how crucial it is to receive it throughout a child's formative years.
But we don’t want them to grow up like us, not knowing much about money, right? Research says that children benefit from learning about money from an early age.
This also contributes to their overall holistic development.
Another research by the University of Cambridge states that your child's financial habits are often established by the age of seven, which is an exceptionally young age by any standard.
If learning how to communicate in English is a necessary skill in today's world, so is financial literacy.
So how can you give your child financial literacy from an early age?
We’ve got a few techniques you can use to gift them financial literacy:
1. Give Them Allowance
Giving your children an allowance or pocket money is a great way of giving them first-hand experience of handling money.
They learn the benefits of smart spending and saving, as well as the dangers of reckless spending. The dangers are far lower now than they will be later in life.
Children will also value items that they can purchase with their own money.
If you're unsure how much allowance to give, keep in mind that there are no hard and fast rules. But try and make it possible for them to earn it.
This way they’ll get better knowledge of how money works.
Base the allowance on household activities such as cleaning, organising their toys, folding laundry or babysitting younger siblings.
Whatever amount you choose, keep in mind that it will become a recurring item in your household budget. Make it a win-win situation for you and your child.
2. Explain to Them Where Money Comes From
Make your kids understand where the money comes from while they’re learning about it.
Before they learn about any other place money comes from, they need to know it comes from work.
Tell them that money doesn't simply come from their mom and dad's national bank.
That’s something they believe in because when they want to buy something, they are granted an allowance or some money by you.
Explain to them - “When you work, you get paid. If you won’t work, you won’t be paid.”
Let this be their first lesson to learn about money.
3. Teach Them The Principles: Giving, Saving and Spending
Once you’ve made them understand where money comes from, teach them about the basic principles of money - Giving, Saving and Spending.
Giving is the most valuable of the three because it teaches kids the value of helping others at an early age.
When it comes to saving and spending, encourage your child to set aside some of their money for savings and some for spending each time they get paid.
Remind them that their money is gone once it has been spent.
Yes, your kids will make errors, but it is preferable that they do it in the protection of your home.
4. Give Them 3 Piggy Banks For Organising their Money
Get three piggy banks for your child instead of one - call one ‘spend,' one ‘save,' and one ‘give’. Any time your child receives money, such as an allowance, reward for finishing a chore, or birthday money, urge them to divide it among the three banks.
Talk to them about how they intend to spend their allowance every time you give it to them.
Place the piggy bank next to your child's wish list so that they are aware of their spending and saving goals.
Allowing your child to select how they split the money and what they do with it is the key to making this educational.
This activity not only helps kids gain confidence in financial topics, but it also allows parents to have important dialogues with their children about money management.
5. Teach While Shopping
Take your children shopping and discuss your decision-making process with them.
Tell your kid how much money you have to spend and what your priorities are when you get to the store.
Demonstrate why you choose one item over another and explain how discounts and coupons work. Keep in mind that kids will emulate your behaviour.
Give your children little amounts of money to spend on their own as well. You'll be shocked at how excited kids are to spend ₹20 on whatever they want!
They'll also learn the value of spending within a budget.
6. Play Games Involving Money
One of the most effective methods to teach a lesson is to do so without your child even realising it.
Play games with a financial component, such as Monopoly or Life, and assist them in strategising during the game.
For them, it will look like you all are just playing, but this will teach your children the significance of budgeting and planning for the future.
Games teach children about cause and effect, how to make mistakes, and how to be rewarded for good decisions.
Even a taboo subject can be brought up in a non-threatening way.
7. Involve Them in Financial Conversations and Major Purchases
Thinking of where to go for a vacation? Planning to buy a new appliance? Involve your kids in the process and engage them in the research process.
You can show them the aspects that go into making a decision and ask them to assist you in weighing your options before making a purchase.
Trust us, they'll be more than happy for contributing to the research that led to the best decision for the entire family.
These discussions about money should be informal, and they can even take place at the dinner table.
It's fine if your children are too little to fully participate. The idea is to simply get more comfortable discussing money as a family without feeling embarrassed or stressed.
8. Teach Them How to Maintain a Budget
Emphasise on the significance of keeping track of one's spending.
Teach your children how to make a weekly record of where they spend their money and tabulate it at the end of the month. It will undoubtedly be eye-opening for them.
Knowing where your money goes is an important element of becoming a better saver, despite the age.
Encourage kids to consider how they spend their money and how much faster they could attain their savings goal if they changed their habits.
9. Make A Wishlist with Them
Making a list of priorities or setting goals is an important element of financial literacy.
We can't have everything we want all at once, but if we plan ahead, we can reach our objectives over time.
Isn’t it a fantastic lesson for kids to learn? Sit down with your kids and ask them to make a wish list of five items.
Then ask them to rank them in order of importance from most important to least important.
After you've made the list, talk with your child about how they can get their wants.
So you see, teaching your children about money is not as difficult as it may appear. All it takes is a little forethought, patience, and imagination.
Simply discussing money with your children might encourage them to begin asking questions and acquiring lifelong skills.
You could also encourage your children to participate in financial quizzes and tournaments to guarantee that the prospect of financial literacy never bores them!
We’ve also got you covered with a guide on how to manage your personal finances and smart financial management tips on scaling up your monetary affairs.