Teaching Children Money Management

Saving money is important. That's a given for most parents, if not all. We have heard multiple wise sayings that convey the point of how it is of crucial importance to plan ahead and to ensure there are sufficient funds to cover any future expenses. This is especially true once couples enter into parenthood because not only do they have to feed two mouths, but now with the family's expansion, the cost of living is only going to increase.

Parents would save money for their children's future, which include their daily expenses and future education. However, in spite of all the financial skills parents may have up their sleeves and all the noble efforts of sacrifice and saving, parents may have overlooked the need to teach their very own children to manage their money well since young.

This results in poor financial management of the next generation. Many of our children only realize the necessity of wise money management in their young adult years, and by then many have already developed unhealthy spending habits or lacked the necessary financial management skills only to remain puzzled and overwhelmed by the immense financial burdens.

So, parents must act now in being better educators, and not just fulfill the responsibility of being providers of the family. As the proverb goes "Give a man a fish and he will eat for a day. Teach a man how to fish and you feed him for a lifetime".

With the Chinese New Year Celebration having just passed, many Chinese children would have received their 'ang paos' (red packets) enveloped with money from relatives as a gift of blessing to the young. There is no better opportunity than now to inculcate the value of saving money and managing it well now.

Do you know that almost 28% of Americans have zero savings set aside to cover emergency expenses. Saving money is a habit since young that needs time to build, and unfortunately even some adults have yet to master it. Yet, many parents are not assisting their child to become financially literate.

If you want to play a role in shaping your child's thinking, feelings, and values about money, here is how you should do it.

1. Keep it basic at a young age

All lessons should start before the age of seven, not excluding saving money of course. The earlier you start your child's financial education process, the better prepared your child is.

You may start by explaining important concepts such as setting a budget, saving, and goals. Also, you may model good examples as their little eyes are watching you. Children learn not just from the instructions they are given, but also from imitating their parents.

If you wish for your child to become a wise saver, being one yourself will certainly speak volumes. Kids need to learn that if they want certain things, they should save money to buy it instead of merely relying on their parent's money and rewards.

2. Use a jar to save money

Piggy bank (or any other container that serves the purpose) is a good idea to teach young kids about the importance of saving, while allowing them an easy way to do it. As you provide them with their pocket money, give them an opportunity to save the unused money into their personal piggy bank.

Parents should also make an effort into understanding their children's interests. A toy may have caught their attention as the family strolls through the mall. Or your child may have been eyeing on a new bike or gadget in the market. These are not instances where you give in to your affections to your children by simply purchasing it for them, but are perfect opportunities to educate them.

Help them turn their 'wants' to a goal. With a goal in their minds, that's where having a regular saving in the piggy bank would come to play. The process will be slow, but the reward will be sweeter, and this will be a valuable lesson for children. Children will learn to be independent and to be diligent in working after something they desire.

For more on rewarding effort rather than only outcomes, see What Parents Need to Know About Rewarding Children.

Apart from that, parents can give them additional opportunities to earn money by completing simple house chores like cleaning their room, keeping their toys or making their bed. When you reward them with a coin daily and eventually accumulating, they will understand the meaning behind it.

For older children, you may want to get them involved with sharing the load of the family in doing increasingly challenging house chores. This will also teach them to be responsible over the family.

Do tell your child that they will only get an allowance if they complete their tasks within the time set. You may also want to remind them that the goal of the piggy bank is to fill up with coins until there is no room. This in turn illustrates the usefulness of piggy banks to save money for the future and the more they save, the more the money grows.

To encourage saving up constantly for their short term goals, you may place a picture of their desired item on the jar so they have a visual reminder of what they are aiming towards.

Make sure the incentives offered are reasonable. The reward from saving shouldn't come by too easily because that will defeat the purpose of the lesson, parents don't necessarily have to reward children with a lot of money.

Parents should also be cautioned against rewarding their children for every single task assigned to them, as this may convey a wrong idea of having money as motivation behind every single decision. Children should learn to be responsible individuals and not materialistic ones.

3. Avoid impulse buys

"Mom, I want this toy! Can we buy it please?" Does this sound familiar to you?

No matter how old your children are, it is not uncommon that they would want something. This is not necessarily wrong, but it must be acknowledged that kids nowadays know how to take advantage of impulse buys, especially when someone pays for them.

They may desire something laid out nicely in a mall or a restaurant, but when the item is obtained, they do not necessarily appreciate the item because they were simply reacting to their impulse.

Instead of giving all that they want and asked for, let them know that they can use their hard-earned allowance to buy it. This will give them the power to make decisions and to consider whether the items they wish to buy is worth spending. By this, they will become more financially savvy.

4. Model good financial behaviour

Parents are always the best role model to their own kids. Even if you are paying for certain items, do explain to your children that you are using your money to purchase something necessarily.

Try not to complain about spending too much in front of your kids and then take them on a shopping spree, you will be sending mixed messages to confuse them. Instead, make sure you model a good behaviour that you want your children to adopt.

If you want them to develop smart saving and spending habits, they need to observe you making ideal saving and spending choices. In a nutshell, practice what you preach and walk the talk. It takes time to educate them about personal finance. If you put in your effort consistently to communicate a clear message about money, you will slowly but surely instill a good habit that serves them well.

5. Talk to your children

Instead of forcing your children to save money initially, you can start a conversation about finance and the importance of saving. Money doesn't have to be scary or a taboo. You may use financial discussion as a teachable lesson. Discuss the difference between their wants and needs so that they will be aware of the importance.

It is important to let your children know that you are always open for conversations about money as this will encourage them to ask questions about saving money. Find out what they are saving for, this way, you can be assured that you are comfortable with what they intend to buy. From doing so, you may make use of the conversation to teach them simple math calculations and guide them through whether they can find it cheaper somewhere else and be a wise consumer.

Educating kids how to save money may seem irrelevant when they are young, but it is certainly needed. Be creative in having these conversations with them and make saving money fun and accessible for your children. It will definitely be worth it if you take the time now to educate them to successfully manage money. It is an investment which truly pays the best interest in the future for their own wellbeing.

References

Ramsey Solutions (April 2018). 15 ways to teach kids about money. https://www.daveramsey.com/blog/how-to-teach-kids-about-money

Dixon, A. (July 2019). A growing percentage of Americans have no emergency savings whatsoever. Bankrate. https://www.bankrate.com/banking/savings/financial-security-june-2019/

Huddleston, C. (January 2021). How to teach your kids good money habits. Forbes Advisor. https://www.forbes.com/advisor/personal-finance/how-to-teach-your-kids-good-money-habits/

Shin, L. (October 2013). The 5 most important money lessons to teach your kids. Forbes. https://www.forbes.com/sites/laurashin/2013/10/15/the-5-most-important-money-lessons-to-teach-your-kids/