Knowing how to be financially savvy isn’t something taught at school, meaning it’s up to parents to teach children all things money. In fact, the more you talk about money with your kids and discuss how you make smart financial decisions, the better. Without having a basic understanding of spending, saving and how to live within their means, it’s much easier for your children to make bad financial decisions, especially when they enter adulthood. That’s why it’s important to start teaching them how to make responsible and realistic choices with money before they have complete financial freedom. Here’s some ways you can start teaching your child some smart money habits and helping them understand how they can be savvy with their finances in the future.
1. Give Your Kids An Allowance
To understand money properly your children will need to have a little bit of their own. Start by giving them a monthly allowance, which will help build their money awareness and give them a bit of financial freedom. This means if they want to spend their money as soon as they get it or save it, they will be able to make this decision. Having this control will give them the opportunity to learn from their mistakes and start to recognise just how important it is to make good financial decisions.
2. Wanting And Needing Are Two Different Things
When it comes to spending money, one of the most important concepts for children to understand is the difference between needing something and wanting something. Often these lines can get blurred, with children and adults believing they ‘need’ something that they actually just ‘want’, which can lead to excessive spending and sometimes even debt. To help them understand this idea further, it’s a good idea to discuss how you question whether items are a necessary purchase or not, and how sometimes you have to make some sacrifices to stay within your budget. For example, explain that you ‘need’ to buy them new school clothes because their old ones don’t fit, yet the new computer game they keep asking for is not a necessity. Understanding that you can’t afford both things is an important lesson and the more familiar they are with the concept of wants and needs, the better they’ll eventually be at judging what is truly important to them and what they can live without.
3. Saving Is Key
Teaching your children the importance of saving money is going to set them up with savvy finance skills for life! Start the process by asking them to save their allowance for something they really want - this can be anything of their choice. Set up a clear money jar where it’s up to them how much or how little they put each month. Over time they can start to see their savings build up, which can be very rewarding, especially when they reach their goal. Being able to save money is a huge part of being financially smart, so the sooner they’re able to do this with their money independently the better!
4. Avoid ‘Free Money’
When your children finally enter adulthood it’s likely they’ll be offered various types of ‘free money’. Whether this is in the form of credit cards, finance plans, overdrafts or loans - they can be very tempting especially for those who don’t understand the true cost. Explain to your kids how most of these ‘free money’ options will have hidden interest or additional costs, meaning they’ll be paying back even more money than they initially spent or borrowed. It’s also important for them to realise how having credit cards and overdrafts will make it easier for them to spend money they don’t actually have, and even easier for them to get into debt. If you have your own stories when it comes to being in debt, it’s important to share them, as it will make it easier for your kids to understand. Being armed with this useful information will also mean they’re much more likely to make smarter financial decisions and be able to say no to credit.
5. Get Them Involved In Your Household Finances
When it comes to teaching your kids to be smart with money, they’ll learn best from watching and understanding what you’re doing with your money and why. Involving your kids in your own financial decisions is a great place to start. You can show them how you budget for rent, bills and grocery shopping, as well as how you plan ahead for larger expenses. You could even get them involved the next time you’re about to make a big purchase. Take the time to show them how you research the best deal, how to compare the products and price points and know before you buy how you’re going to pay for it. This will teach them how valuable it is to weigh up all the options available when it comes to spending money.