Teaching Kids to Value Money

As children step into adulthood and leave the nest, they often struggle with financial literacy. It can take years to master budgeting, prioritizing expenses, and not blowing through their allowance in the first week. That’s why instilling good financial habits early on is crucial.

Starting Financial Education

The best place to start is with yourself. Children of financially savvy parents are more likely to be money-wise themselves. Use your own budget as a teaching tool: how you plan it, how much you save, and what your financial goals are. Parents are the primary source of knowledge for their kids.

Understanding Money from a Child’s Perspective

For kids, money is all about the short term. They see it mainly as a means of exchange, saving up for a few months at most for a desired purchase. The concept of saving and growing money is often lost on them.

Moreover, with the rise of virtual currencies in games and social media, the tangible value of money is diminishing. The idea of “spend and get” has less impact. Hence, it’s better to give younger children physical cash as pocket money.

When to Introduce Pocket Money

A good time to start is when school begins, as kids will need to buy snacks, meals, or stationery. Start with daily allowances and gradually move to weekly.

Managing Children’s Spending

Finding the right balance is key. Allowing kids to spend freely can be educational, but the lessons might be limited. For example, a friend of mine gave her children two weeks’ worth of pocket money, which they spent in two days, leaving them penniless for a while. They learned their lesson.

However, I recommend discussing budgeting with your kids, perhaps helping them choose a finance app and ensuring they make entries in it. My father used to reward me for keeping accurate records. Stay consistent; if your children overspend, don’t bail them out until the next scheduled allowance.

Fostering Healthy Financial Habits

Encouraging kids to save a portion of their earnings is a great habit. Give them a bit extra so they can put some aside, say 10%. This way, they’ll learn to save a part of any money they receive, like birthday gifts. They might not save enough for college, but the habit will stick. Another good practice is keeping financial records. If your family has a culture of financial management, pass it down to your children.

Teaching kids to give is also important. Have a chat about what causes they’d like to support, be it an animal shelter or helping less fortunate children. It’s crucial that they grow up understanding the value of money, not just as a means to accumulate wealth.

Explaining Basic Economic Principles to Children

I suggest discussing inflation and exchange rates with kids. If they grasp basic economic terms, that’s impressive. Such topics might not initially interest them, so finding ways to engage them is key.

Introduce these concepts through books or movies. For instance, “Becoming Warren Buffett” is a film I recommend. Watching it could lead to discussions about “stocks” or “inflation.” It’s more appropriate for teenagers, as younger kids around 7-8 years old might not find it appealing.

Paying Children for Household Chores

This is a debated topic among Western psychologists. There’s no consensus on whether children should be paid for tasks like washing dishes or cleaning. The majority believe it’s not a good idea, as fulfilling family responsibilities should be expected without payment.

However, for unique tasks outside the usual family chores, it’s okay to offer some compensation. For example, teaching grandma to use a tablet or washing the car could warrant a reward.

Dealing with Kids’ Frivolous Spending

If your child spends all their money on sweets instead of a book, mobile top-up, and treats as intended, that’s a concern. You could take a strict approach by leaving them without mobile service for a month. Alternatively, a gentler method would be to discuss the issue with them.

Book Recommendations for Kids

I often suggest “A Dog Named Money.” It’s an easy read about a girl named Kira and her dog, suitable for children over ten. For younger kids, games like Cash Flow or playing pretend store can be educational and fun.

Online Spending for Kids

Online shopping can be tricky. It’s crucial to know which card is linked to online payments. A friend of mine created a separate digital card for his son, which the son could top up with cash. This means the child hands over cash to the parent, who then loads it onto the digital card. It’s an effective way to monitor your child’s online spending.

Saving vs. Spending for Kids

Some children prefer saving to spending, which is just the opposite extreme. Encourage them to spend on things they enjoy.

I recall a story about a well-off family whose son had nearly everything he wanted. He was a fan of FC Shakhtar Donetsk, so his father suggested saving up to buy a ticket to a Champions League match. The idea was a hit.

Parental Involvement in a Child’s Earnings

If a teenager is exploring part-time jobs and earning their own money, it’s best not to interfere. Meddling can demotivate them. Instead, assist them in spending their earnings wisely without taking it away.

Key Financial Tips

In finance, some costs are fixed and beyond our control, like utilities or gas prices. However, we can manage the rest, so it’s important to know how much you can save for the future. This can be done in specific amounts or percentages.

Every family handles this differently. Some find it easy and don’t need detailed financial analysis, while others struggle and need to pay more attention to their spending.