Money helps provide people with decision-making opportunities.
Bad spending habits can have a far more negative impact on a child’s financial future than any investment decisions they may ever make.
Educating, motivating, and empowering children to become regular savers and investors is one of the most valuable lessons you could teach your children.
Here are some simple ways to help educate children about personal finance and managing money:
1. As soon as children are old enough to count, introduce them to money. Take an active role in providing them with information. Observation and repetition are two important ways children learn.
2. Communicate with children as they grow about your values concerning money — how to save it, how to make it grow, and most importantly, how to spend it wisely.
3. Help children learn the differences between needs, wants, and wishes. This will prepare them for making good spending decisions in the future. Often, sleeping on a decision helps clear the mind to help them make decisions which are based on reason, not emotion.
4. Setting goals is fundamental to learning the value of money and saving. Young or old, people rarely reach goals they haven’t set. Nearly every toy or other item children ask their parents to buy them can become the object of a goal-setting session. Such goal-setting helps children learn to become responsible for themselves.
5. Introduce children to the value of saving versus spending. Explain and demonstrate the concept of earning interest income on savings. Consider paying interest on money children save at home; children can help calculate the interest and see how fast money accumulates through the power of compound interest. Later on, they also will realise that the quickest way to a good credit rating is a history of regular, successful savings. Some parents even offer to match what children save on their own. I’ve found this to be particularly powerful as they get to see and feel the interest that was earned for their efforts.
6. When giving children an allowance, give them the money in denominations that encourage saving. If the amount is $5, give them 5-1-dollar coins and encourage that at least one dollar be set aside in savings. (Saving $5 a week at 6 percent interest compounded quarterly will total about $266 after a year, $1,503 after 5 years, and $3,527 after 10 years!)
7. Take children to a bank to open their own savings accounts. Beginning the regular savings habit early is one of the keys to savings success. Remember, don’t refuse them when they want to withdraw a portion of their savings for a purchase–This may discourage them from saving at all.
8. Use regular shopping trips as opportunities to teach children the value of money. Going to the supermarket is often a child’s first spending experience. About a third of our take-home pay is spent on grocery and household items. Spending smarter at the grocery store (using coupons, shopping sales, and comparing prices) can save you hundreds if not thousands per year for a family of four. To help young people understand this lesson, demonstrate how to plan economical meals, avoid waste, and use leftovers efficiently. Add up over 1 week what the alternative spend would have been to show them the difference a little planning can make. When you take children to other kinds of stores, explain how to plan purchases in advance and make price comparisons. Show them how to check for value, quality, repair ability, warranty, and other consumer concerns. Spending money can be fun and very productive when spending is well-planned. Unplanned spending, will usually leave you wondering, “where did the $50 in my wallet go?”.Have you ever asked yourself that question?
9. Allow young people to make spending decisions. Whether good or poor, they will learn from their spending choices.
10. Show children how to evaluate TV, radio, and print ads for products. Will a product really perform and do what the commercials say? Is a price offered truly a sale price? Are alternative products available that will do a better job, perhaps for less cost, or offer better value? Remind them that if something sounds too good to be true, it usually is.