Teaching your children financial literacy is one of the many tasks of a responsible parent. In today’s day and age children (and adults) are bombarded with information from a myriad of sources. It is important for parents to teach their children how to manage money before they are misguided.
Introduce the Concept of Money
Introduce young children to money, what it represents and its value. Also begin to explain different financial activities, such as drawing money and paying cash or with a debit card. They don’t know that money is a finite resource so explain where the money comes from and how it is obtained.
The Difference Between Wants and Needs
Children should from a young age learn that there is a difference between wanting something and needing something. This is also the time to teach young children that you cannot always just get what you want but that you sometimes have to wait and save to get what you want.
How to Make Money
Introduce the concept of making money by giving your child an allowance of letting them do chores and paying them for it. When they are older, they can get vacation jobs, like cutting the neighbours grass or walking dogs in the neighbourhood. The next step is to learn children that they need to make choices about how to spend the money they have earned.
Budgeting
If a child immediately uses all the money they have earned, it would teach them the valuable lesson that there are consequences for not keeping the money for other things you may want or need before you have money again. Learn children to budget to help them understand the opportunity cost of spending money and to track where their money is going. They can also create a wishlist of things they want to do with their money and then use the budget accordingly to reach this.
Making Money Grow
The next step is learning to save money. You can help by opening a bank account for your child and explaining to them why we keep money in a savings account. Show your child how their money can grow just by saving it. Also, learn them to try and avoid credit and rather pay in cash.
Start Early
Children are very observant and usually copy what they see. This means that you have to the example of how they should see and treat money.
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