"Money doesn't grow on trees". Sound familiar? Those with kids have probably all said it at some stage and those without have heard it from their own parents. Teaching children the value of money is an important life lesson. To become financially responsible adults, children need to learn how to save properly, spend wisely and stick to a budget. So what are the lessons we can teach them?
Lesson 1: Learn how to budget
Budgeting is an important concept that needs to be taught to children so they understand the value of money. Give them a fixed amount of money each week and show them how much they can afford to spend each day to avoid running out. Also, explain that if they have $10 they can buy something inexpensive and have some left over, they can spend all of it and have nothing left or they can save more and buy something of higher value later on.
Lesson 2: Saving takes time
Teach children that if they really want something, they need to save for it and that they may have to wait before they can buy it. Help them set goals and setup a chart so they can visualise it. For older kids, help them make regular bank deposits so they can see that with saving and patience they can reach their goals.
Lesson 3: Work = Money
Helping with chores for pocket money is generally the first exposure kids have to the concept of income. Teaching them about reward for effort will help them understand the connection between work and money. It will also demonstrate that money doesn't just magically appear from the ATM, it has to be earned.
Lesson 4: Let them make choices about spending
Let kids make their own decisions about how to spend their money. Like most life lessons they will learn from their mistakes so let them make some. Allowing them to make some impulse buys will result in them understanding the consequences of their decisions, less money and more time to reach their long-term goal.
Lesson 5: The more you save, the quicker your money grows
As kids get older start to teach them about the concept of compound interest. Explain how they can earn interest on their savings and teach them that not buying something small now can be more rewarding later.
Children become more financially independent as they grow leading to different spending and saving behaviors. Keep them engaged with the financial world around them and they will be on track to becoming financially responsible.