One of the greatest life lessons a parent can pass on to their child is to teach them the true value of money. In general, kids have little to no concept of money. All they know is that, if they want something at a store, mom or dad will get it for them with the help of the never-ending supply of coloured notes in their wallets and purses.
Teaching children the value of money is a long and tough concept to explain. It is an ongoing discussion that starts in very early childhood and continues on into high school. Teaching your kids about money early in life can help them to learn healthy financial habits that will last a lifetime. But the more knowledge they have, the better they can make monetary decisions.
Children as young as three-year-olds can grasp financial concepts like saving and spending. Five and six-year-olds start to develop cognitive skills to understand the basic monetary concepts, such as identifying coins, figuring out how to count change, and matching small amounts of money to items they want to buy.
Here are a few ways to teach your kids about money.
WHERE DOES THE MONEY COME FROM?
It is important to teach your child that money doesn’t grow on trees or come out of nowhere. Explain to your child that in order to get money, you need to go to work, do a job, and you earn because of your hard work. You can encourage them to do a specific job in the house in order to earn their own money. Don’t set their aim as a normal thing to do, such as making their bed or cleaning their room. Set a goal depending on their age, like walking the dog, washing the car, etc and pay them for that job.
PIGGY BANK AND A LOCKER
Now that amount has to go somewhere. They can’t just let it lie around anywhere. Therefore, introduce them to a piggy bank or an electronic/digital locker of their own. Ask them to put in their cash in their bank and teach them the importance of this bank. Tell them that initially there would be a small amount of money, but after a time period of saving, the amount would have increased.
Basic counting, multiplying, dividing, subtracting and adding is a must. From a young age, your child must know how to add and subtract. Give them little problems to solve or ask them some problems such as: If an apple costs Rs 10, and you have Rs 7, how much more money do you need to buy the apple? OR if an apple costs Rs 10 and you have Rs 20, how much money would be returned to you by the fruit vendor?
When your child wants to buy a specific toy, ask them to try and purchase it with the money they are saving. Don’t just buy it immediately. In case if they don’t have enough money, ask them to work hard and wait till they earn that much to buy that toy later on. It is wise to help them set financial goals. But constantly remind them to save side-by-side, else they’ll go bankrupt.
As your child will grow, they will want to manage their own house, bills, etc. Therefore, it is important to help them understand the cost of an independent life. You can decide to charge your young adult children rent or as them to contribute to household bills. A small amount can be charged on them to understand the expenses they would need to face when they become adults.
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Let your child choose how to spend their money. Take them to the store with you and keep some money in their wallet or purse. When they see something they want to buy and ask if they have enough money to purchase that item, be honest with them. This is a lesson they need to learn. This little act will make them understand that they need to wait for a few weeks or longer in order to save some money and earn some more.
NEEDS VS WANTS
It is important to understand the difference between needs and wants. Teach your child that a “need” is when it is necessary, just like water and food (keeping health in mind) and “want” is when you have an urge for it but it is not important, just like junk food or cold drinks. The best time to make them understand this concept is when you take them out to the store.
BORROWING (DEBT AND CREDIT)
Once your child has an idea of spending and saving, they have begun to manage their money. Next, you can introduce them to the concept of borrowing money. When you take them out next and incase they liked something and don’t have the money to purchase it, tell them that you will buy it for them only if they will pay you back once you get home. Upon reaching home remind them of their debt and have them spend the exact amount so that they know how much was actually spent when they borrowed from you. If they don’t have enough money, have them pay whatever they have and write an IOU (I owe you) and take it out of their following allowances until the debt is repaid. This recurring deduction will help them understand what it is like to owe money over a long period of time.
BUYING AND SELLING
Show them how they can exchange money for goods and services. This can be better seen and learned in the marketplace. You can even buy out their old toys from them (if they want to sell) and pay them the little amount they set. But do tell them that the toys you are purchasing will be given off to orphanage homes and this buying and selling is only between you and them, and not their friends or any other peer. This way they learn to give off their old and unwanted toys.
Conversations about finances are important. Encourage them to ask questions when it comes to money and create a safe environment where they can come to you about it. No matter how old your children get, it is important to show and teach them a strong understanding between them with their personal finances which will help them succeed later in life.
Researched and compiled by Xplorabox staff
About the Author – Raveena Nijjar
Raveena Nijjar is born and brought up in Delhi. She studied in the USA as a child. Ms Nijjar is well known as Miss Multitalented. She loves to write and can write on any given topic. Additionally, she loves to travel and is popularly known by the nickname RV. She can’t go a day without completing her diary/ journal entry.