5 essential money lessons you need to teach your kids
It is never too early to impart smart financial habits to your kids. Here’s a list of out top 5 most important money lessons to help you raise a generation of financially responsible individuals. Financial literacy at an early age is key to building sound money management skills that will last a lifetime. Parents are the greatest influence on their kids’ financial behaviour, so it is imperative for them to teach their kids the basics of managing money.
Before your children step out into the real world, make sure they have their money priorities in order. To achieve this, it is a good idea to familiarise them with the concept of income, budgeting, saving and expenditure.
Our team highlights the most essential money lessons for kids and how you can help your child ace them:
Budgeting 101
Budgeting is unquestionably the first point to tackle when talking money with your kids. You should make sure the children understand that the household income must be allocated carefully and that together you should aim to save more than you spend.
Allowance is a useful means for teaching kids money management with budgeting. Be proactive in helping your kids decide how their money should be spent. Also have them write down a spending plan so they can see exactly where their money is going.
Borrow wisely
Teaching children how loans, debts and credit cards work is one lesson you can’t afford to miss. Kids need to learn that borrowing money costs money. They should only borrow what they can easily repay and never take out a loan unless it is inevitable.
A credit card should not be applied for unless the applicant fully intends to settle the bill in full every month. In addition, knowledge of how credit accumulates over time is essential. It is easy to fall into the trap of paying less than they owe. They need to understand how being burdened with debt can affect their finances years into the future.
If you want your kids to grow up to be savers rather than spenders, the sooner you instill these qualities in them, the better
Save First, Spend Later
This is a golden money rule to live by. Saving money requires conscious effort and discipline. If you want your kids to grow up to be savers rather than spenders, the sooner you instill these qualities in them, the better.
A good way to demonstrate the importance of savings is to have your child put aside money from his allowance for something he wants to buy. Then work with him to figure out how to reach his goals. Start from small short-term goals and then shift the idea to more significant long-term goals.
Money is a finite resource
The concept of paper currency is lost with kids these days. They see their parents taking money out of walls and swiping magic cards in stores. They don’t get to see how much effort goes into earning that money. This gives them the impression that money is infinite and not a valuable commodity.
Children need to understand that money is always hard earned and it is important to make wise choices in order to conserve it.
Separate wants from needs
Separating wants from needs is an important yet confusing idea for kids to grasp. It may require constant reinforcement and sometimes takes a while for them to get a hold of the entire concept. Children need to understand that there is a limited supply of money coming in every month for the goods and services that your family needs and wants, and you all have to make wise spending choices. With older children, it is a good idea to make them think through the consequences of careless expenditure and consider alternatives.
Also remember that kids do as they see. If managing money and differentiating between needs and wants is a household norm, the task will become a lot less challenging for both you and your kids.