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Monday, April 15, 2024

How to Raise Financially Responsible Children

Our children are our future and they will one day form an important component of society and its functions. As such, it is important that we do everything we can to help them gear up for tomorrow and ensure that they are well-equipped and prepared to face future challenges. One area in particular that they need to be aided with is managing finances as adults.

Being financially responsible and managing money as adults is usually a difficult task due to a number of reasons. Acquiring adequate income is often hard as it is, but not having effective money management skills leads to further problems such as unnecessary expenses, falling into debt, impulse buying and more. However, despite the importance of learning financial management at an early age, most of these topics are not taught at schools. This is why it is crucial that you help build your children’s financial literacy and set the foundation for a better financial life in the future.

When Should Children Start Learning About Money?

Surprisingly, children are able to comprehend pretty basic financial concepts at a very young age. A study conducted by Purdue University states that children are able to grasp basic money concepts from the age of 3, whilst many financial habits are already set by the age of 7. Source

Children are already curious creatures as they reach the age of pre-school since they are keen to explore and learn more about the world around them. This makes it the best time to introduce them to new concepts – such as money management. Research has shown that adults who manage money well are those who were shown the importance of money when they were children and those who were entrusted with the responsibility of saving at a very early age. Source

So when should you start teaching your kids about money? The answer is – it’s never too early to start.

Why is it Important to Teach Children About Money?

Develops great financial habits:

Financial habits are usually developed early on in life, so it is important to give your child a head start – even if this cannot be done overnight. Start small with practices such as planning and saving, which will undoubtedly be extremely beneficial for them in their future years.

Establishes financial awareness:

Gaining financial knowledge as a child can go a long way. Not only does this provide familiarity with financial terms for their future years, having basic financial literacy can help children make better decisions in their life – even at a young age.

Helps set goals & achieve them:

A major aspect of successful money management is learning how to define goals and to work towards them. This is an invaluable lesson for children and adults alike, not only with regard to finances, but with almost every area of our lives.

Tips on How to Teach Your Children Financial Responsibility

There are various things that you could do to help your child develop better money management skills. A few tips have been compiled below:

Teach them the value of money:

First and foremost, it is important that kids learn the importance of money in terms of it being a commodity and how it is what allows people to obtain what they need to live their lives. Teach them to develop respect for money – even for change money – and ensure they truly understand how important it is to be mindful of spending and saving.

Be open about family finances:

Most families seem to consider money to be a taboo topic – especially amongst kids. This is often the case for families who undergo considerable financial struggles. Adults who see money as a topic of great stress and distress tend to not discuss financial matters with children, in an attempt to protect them from the harsh struggles of life. However in the long run, being open about family finances is always the best way to go. Be open with your kids about where your family stands financially and be transparent in discussing any challenges that you face.

Give them an allowance & encourage saving:

An allowance is one of the best ways to teach kids about bearing responsibility with regard to personal finances, by helping them develop budgeting skills and also acting as a motivating factor to achieve goals. Teach them how to budget their allowance, how to avoid overspending and the importance of keeping track of every expense they make.

Give them a piggy bank or till:

A great way to encourage children to save is by gifting them their own till or piggy bank. By offering a physical place to store their money, piggy banks and tills provide children a sense of achievement when they are able to see and feel their savings in their own hands. Not only that, it is fun! Making saving an enjoyable activity further encourages children to pursue doing it even in the future.

Get them involved in financial decisions:

Let your kids get involved in your family finances and keep them updated on what’s going on – from little shopping expenses such as grocery shopping to even more serious expenses such as large purchases or debt payments. Ask for your child’s opinion on matters and make them feel seen, valued and involved.

Play money related games:

Financial games such as Monopoly and Cashflow 101 are not only fun, they are also educational! These lighthearted games expose children to the responsibilities and frustrations of managing their own finances and also generates a positive outlook towards money at the same time. Games such as Monopoly are able to teach kids financial basics such as taxation and loans and also helps them develop better math skills, negotiation skills and problem solving skills.

Encourage entrepreneurship:

Entrepreneurship helps turn kids into leaders, who are able to lead independent and successful lives. Make sure kids understand that entrepreneurship is a viable option in their lives – so that they are able to create their own opportunities when the time comes.You could start small, with fun activities such as helping them run their own juice stall or cookie sale that helps them generate better observation skills, self-drive and creativity. Encourage teamwork and stress on the importance of goal setting and planning. Also teach them that its okay to fail and how mistakes only provide more opportunities to learn and discover new ways to accomplish goals.

Introduce the banking system:

Let your kids accompany you on your minor trips to the bank or to ATMs. Help them gain a first-hand experience about how important banks are in safekeeping people’s money and lending money. Let them see simple bank transactions such as withdrawing or depositing and also let them interact with the teller and count their own money. You could also consider opening a savings account for your child, so that they feel more comfortable talking about money and their banking experience – which ultimately encourages them to save.

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