We all realized the importance of financial lessons when we got ourselves under a lot of debt. Even the government realized this and they have taken steps to encourage schools to include financial education in their curriculum. The Department of Financial Institutions promote various programs that will help children from all levels understand the basics of money management.
But is it really a good idea to wait until your child is taught financial education in school? Why not start while they are even younger?
As a parent, it is your job to make sure your children are given a stable foundation as they grow older. This strong foundation come in the form of the values that you will impart while they are still young. When you get used to a type of lifestyle at a young age, you will inherit values that even influential society cannot take it from you.
We are of course, talking about proper financial habits. If you grew up in a family that racks up huge credit card balances, the chances of you having the same spending habits will be high. But if you grew up having strict saving values, you will carry that as you grow older.
What can you teach your kid about personal finance
Teaching your kids about financial management may be quite daunting. However, there are simple techniques that you can use while they are still very young to help steer them in the right direction. But what lessons can you teach? Here are the important concepts that you should discuss with your children.
Toddler to preschool years
Concept of money. Start by discussing what money is and how you use it. Explain how it is traded for products that you wish to own and use or services that you want to avail. If you start your kid very young, you can limit the lesson to that. When they add on a few years, explain how the money you pay to vendors and merchants help them buy more products to sell.
Concept of saving. This is one of the financial lessons that you want to instill early on. Some people find it hard to save because they are simply not used to it. Since it is unnatural to them, they easily give in to the temptation of using it for some other purchase instead of putting it aside as an emergency fund. This is an easy concept to teach because of piggy banks. You can start them really young – children like putting coins and hearing them clink inside the container.
Elementary to Middle school years
Concept of budgeting. As soon as you start giving them an allowance, you want to teach them how to budget that money. When you think they are ready to understand the concept, give their allowance on a weekly basis. Explain to them that you will no longer give them money during the week and that they should ensure that the money will last until the end of the week – even over the weekend.
Concept of financial planning and goal setting. Kids usually ask parents to buy a lot of things like toys, video games, etc. You can give in to some of them but when it comes to really expensive purchases or highly unnecessary ones, you may want to teach them how to save up for it. This involves financial planning and a bit of goal setting. For instance, sit down and review their expenses on a weekly basis. Ask them what expenses they are willing to sacrifice to get the product that they really want to buy. Help them come up with a savings plan and how they can monitor it. Guide them through it and even offer to pay for half if they save up for the other half.
Concept of banking and interest. There are various banks that offer children savings account. Explain how, when they save in a bank, they get to earn on the interest. Open their account and let them decide what bank they want to open with. Explain the benefits and offers of each bank to help them decide.
High school to College years
Concept of credit and credit cards. When they are older, you need to teach them the concept of debt and the very controversial credit cards. Help them understand how debt works and how it is necessary to pay it back. You can implement any financial lesson with practical applications through a credit card. Let them understand how the are really wasting money on the interest if they let the balance go unpaid during the grace period.
Concept of earning money. When they are old enough to do so, let them earn their own money. Encourage them to offer their services to neighbors to apply part time jobs. This is a great way for them to experience a bit of financial independence but make sure you help them understand how to manage their salary wisely.
Concept of giving back. When they start earning money, you want to encourage them to give back to the community or set aside money to tithe in church. This will keep them from being too selfish about their money.
Concept of taxes. This is a bit more complicated and you can be assured that this will be taught in school. But nevertheless, it is better if they hear about taxes from you. Just explain how it applies to you.
Concept of investing. When they start earning money, teach them how to invest and grow their money outside of their allowance and what they earn part time. Help them understand the different methods to invest and the risk involved in each.
All of these concepts are quite important to help shape the right perception about money in the mind of your child. You don’t have to follow the age bracket strictly. You know the capabilities of your child best and you can teach certain concepts earlier or you can teach it a bit later. The important thing here is to make sure you teach them something. That is the only way you can really protect your child from any debt problems.
Expect that your child will make mistakes along the way. While you want to be there for them always, make sure that you let them learn from their mistakes. Show your support but do not be quick to send the money to bail them out of a tight situation.