Learning how to budget as an adult is more difficult, so start your child out right by teaching him how to budget while he is young, and you will build good money budgeting habits right from the start.
These lessons are not necessarily easy for either the parents or the child, but when your child reaches adulthood and finds that he is able to manage his money better than his friends, he’ll have you to thank. He might not recognise that his proficiency with money is due to the lessons you gave him early in life, but you will have the satisfaction of knowing.
Include Your Child in Discussions about Your Finances
Lots of parents think that they should never discuss their financial situation with their child. The opposite is actually true. Bringing your kid into the family’s financial discussions will help to give him the context he needs to understand why certain purchases are not made or why holidays are not as elaborate as their friends’ trips.
You will need to determine what level of inclusion is appropriate for your child, but getting him involved even a little when he is young and then increasing his involvement step by step as he matures will give him the working knowledge he’ll need later in life when dealing with his own finances.
A Weekly Allowance Is a Good Teaching Tool
Some parents give a weekly allowance and some don’t. Sometimes the allowance is tied to household chores. Sometimes it’s not tied to chores but is considered a way of teaching kids to budget.
Keep in mind the value of giving an allowance as a method of budgeting for kids.
Simple Is Best for Small Children
Keep budgeting very simple when your child is quite young. The idea is to begin teaching the concepts of saving money for the future and prioritising how to spend it.
Many parents like to use clear glass jars for young children to put money into.
Get More Complex as Kids Get Older
As your child grows, you will find that including him more and more in financial decisions will deepen his learning about budgeting. Watch your child’s attitude toward money to determine how fast to bring him along.
You’ll find that teaching simple budgeting at an early age and then progressing step by step so that he can participate in decisions on bigger purchases will prepare him well for dealing with his own money as an adult.
We are all busy and there is always so much to be on top of, school lunches, homework, after school activities, work, dinner etc. Sometimes teaching your child about money is the last thing on your mind. However, as you know kids learn from their parents and whether you are intentionally teaching them or not just observing how you behave, say and react gives them a sense of what to do. Kids learn more from you then from their teachers and friends combined.
If you don’t take the time to teach your kid about money, they may learn from negative or outside sources, such as a friends, television or other family members who aren’t financially savvy. If you are already teaching your kids about money, this is fantastic and you are setting your child up for financial success in the future. Even if you are already teaching your kids or you are planning to, here are some of the not so good ways to teach kids about money that you may want to be mindful of.
1.Waiting Too Long to Talk to Your Kids About Money
Kids understand more than you think. Starting at age 3 isn’t too early and you can start with simple concepts like what is money, how money is used to buy things from the shops. Playing simple shopping games at home is great fun as well. See What to Teach Kids When.
2. Not Talking to Kids at all About Money or Leaving it to Someone Else to be Their Teacher
Some parents find talking about money to their kids taboo or not something that they should be sharing. Curiosity about money should be encouraged. Obviously, it is up to you what you want to share, especially if asked how much money you have or how much you earn, but these questions shouldn’t be shut down either. These are great segways into explaining how money is earnt from working, how value is placed differently on different skills and jobs and how saving and investing money impacts what you have.
Some schools and teachers teach about money or financial literacy in some form. However, it shouldn’t be the job of teachers to instil good money habits. Always encourage your child to learn about money at school but ensure you are also giving them a good education on the topic at home.
3. Lying to them About Money
Especially when kids are young you may think they won’t understand or don’t need to know. Children understand more than you think and making a habit of lying to them breeds mistrust in what you say or potentially stops them asking questions in the future. Easy traps to fall into is to say you don’t have money when they want a toy or a sweet but then you go and buy the groceries. It’s easy to say money grows on trees when you can simply explain how money is earned. We all do it but just be mindful that the truth and even a simple truth goes a long way to starting a child on the financial savviness journey.
4. Not Showing Them How to Manage Money or Bank Accounts
As your child gets a little older and they have a bank account. Show them how to use it. Gone are the days of visiting a banker at the local branch but simply showing them how to access their account online and showing them what everything means is a great first step.
Next, explain to them about money going in and money going out. Show them actual transactions of when they put money into the account and when money was taken out plus of course the remaining balance. If the account charges fees, explain to them what they are too. However, many bank accounts these days don’t have fees so it is worth hunting around if your account charges them.
5. Uncontrolled Spending
Kids learn from what we do and they use us as their role models. If we spend money without a thought then are stressed when bills come in or when something unexpected happens, this sets an example on how to manage money. Even just the view that you go to school, then university, then get a good job so you pay for a nice house and car needs to be challenged in today’s uncertain world. With more and more technology, different skillsets becoming less in demand and others increasing, companies choosing staff reduction as short-term cost savings, being in a good financial position to weather whatever life throws at you is good practice to have.
Teaching kids how to save and to have a savings buffer for those unexpected events is important. To think about what they spend their money on, not saying you can’t have fun and buy what you enjoy but put it in context of your financial situation. Showing how to manage and track their money through online banking or specific finance apps is also good practice.
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Here at Money Moppets, our passion is to help parents teach their kids about money so that they can be confident with money as they develop into adults. For those parents who are confident with money many see the value of teaching their kids and may just need a little help on how to approach it. Those that aren't confident may feel a little daunted. If this is you don't worry, we are here to help and if you have any specific questions, comment on this blog post and we will do our best to give you some helpful tips.
One way to test your confidence is by how you approach saving money. Most of us know that saving money is an important part of life if you want to have a comfortable living. Whether you want a car, a house, a holiday, or the latest toy, saving up is key. It is not surprising that many people struggle with saving and end up giving up without reaching their goals. However, there are some that nail it. So, are you a confident money saver? Test yourself by reading below the 5 common habits confident money savers exercise.
1. Know What You a Saving For?
“A goal without a plan is just a wish”. This saying couldn't be truer when it comes to saving money! The first step to success is to identify what you’re saving for. Is it a trip to Paris? A deposit on a house? Money for your child's education? Knowing what it is you want and having a clear goal will help you to stay on track. Have a picture of your goal front and centre so you will see it everyday to give you that extra motivation. Without an end goal in mind, it’s easier to stray from the saving path and spend money impulsively because – why not?
2. Know When You Need It By?
Now that you know what you are saving for, it's time to determine how long you have to save it. This time period could be set for you like when your child reaches school age or a timeframe you create yourself. If you are choosing the timeframe yourself, set a realistic but also a challenging goal. If you give yourself too much time, there won’t be enough pressure to motivate you and you will be less likely to stick to your plan. If you don't give yourself enough time, the goal seems unattainable and you will likely give up.
3. Have a Savings Plan
Once you know your savings goal and your timeframe, take a good look at your financial situation and how you've been spending and saving your money. Determine how you can improve your budget, where you can save money or get a better deal, where you can cut back and what ‘needs’ are you spending money on that are really just ‘wants’. Saving money can mean big changes, like moving house or getting a new job. In most cases though it means small adjustments to your lifestyle like bringing your lunch from home rather than buying it at work. You might also want to think about how your savings can work harder for you, either in the form of a high interest savings account or investing in shares. All successful savers work out a plan to reach their savings goal, and stick to it.
4. Tell Others Your Plan
Your family and friends can be a great support in helping you achieve your savings goals. It’s psychologically proven that sharing your goals helps you to attain them, by adding the pressure of making yourself accountable to your peers. You can make your goals feel more 'real' by sharing them. Your social group can cheer you on, offer advice and show their disappointment when you’re falling behind.
5. Review Your Progress - Regularly!
Set regular milestones along your savings timeline, either weekly or monthly, and focus on reaching those goals. If those milestones are big achievements, think of doing something to reward yourself. Keep track of the goals you have reached and how you are progressing. Many banks have savings tools and calculators specifically for this purpose.
So how did you go? Do you practice these habits?
Our job as parents is to impart to our kids relevant information, skills and values. One of those skills is how to manage money. Unfortunately, we were probably never taught these things ourselves, as learning specifically about managing money was not part of the school curriculum - then or now. But even if we weren't taught about money, we've learnt through trial and error and have life lessons to pass on to our kids.
Whether it be the value of savings, highs and lows of investing or lessons learnt from having high credit card debt. These learnings need to be shared with your child. Talking about money shouldn't be taboo.
When your child starts to earn money, whether it be from chores around the house or a part-time job; start asking them questions about how do they feel to have some money, what excites them about it, are they afraid of it? This doesn't have to be time consuming or forced, just talk about it in regular conversation. Talking about it and having the opportunity to explain options, lessons learnt and tips is a great place to start.
Money isn't the answer to happiness - but if being comfortable with it opens opportunities and choices for your child, we're doing a good job.
Many parents I have spoken to ask the question from time to time, "is my child spoilt?" or remark "my child thinks money grows on trees". It's not that surprising considering that we live in a time when when buying items via the Internet is immediate and advertising is everywhere you turn.
I was confronted just the other night by my two year old who was watching one of her kids shows on TV. Every ad she saw the words that came out of her mouth were "I want that".
Wanting things is not new, and not always knowing the difference between wants and needs is not new either. But as parents, one of the ways we can educate our kids about money is by explaining the difference between things that are made and things that are bought. Show them something in the garden, like herbs or flowers. Discuss with them that If we grow these ourselves, we don't have to pay for them. But if we get them from a shop or somebody else, we have to pay money for them. You can round out the lesson by pointing out that if you have more herbs or flowers than you need, you can sell the excess in return for money. This is one way to earn money.
Kids need to get to grips with this key concept of the exchange of goods and services for money. It's also a good way to tackle that "my child thinks money grows on trees" problem - you're linking the idea that ultimately money is bound to finite amounts of goods or services - in this case how many flowers or herbs are available in the garden.
In everyday events, talking to your kids about where money comes from, what you spend it on and why you save is the best lessons a child can get at a young age. Watching their parents as role models in and of itself helps to create good money habits. A practical way to show kids that money cannot buy everything is to take them to the shops or give them some money to spend at their canteen. Give them say $2 at their school canteen and let them make the decision about what they can afford and what they cannot. Being able to make these choices and then understand that when the money is gone, it's really gone, is the first step in training a money superstar.
According to Wikipedia the definition of money is “any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts in a particular country or socio-economic context, or is easily converted to such a form.” This is a bit of a mouthful for my 5 year old so the question is what is money?
Well, simply money is something you earn through exchanging something of value (e.g. your expertise, your time, something you make, produce or sell) and you give up for something you want. How much money you earn or give up is determined by what someone else is willing to pay. If you have a play shop or cash register at home I find this is an easy and fun way to show your child how it works. Give them some real coins or play ones, label a few of their toys with prices (numbers) and ask them to buy the toys they want with the money they have. They’ll soon see they cannot afford everything and will have to make choices about what they really want for the money – less things of higher value or lots of things for smaller values. It is also is a great way to practice math!
Last week, when my daughter asked for the latest Barbie campervan my comment was ‘I can’t afford it, I’ll keep it in my mind for your birthday”, the usual response is “ok mummy” but this time I was confronted with, “just put in on the card”. When lots of purchases are now made electronically through credit or debit cards or electronic transfers, the simple act of counting how much money you have and taking it to the store is not always practical.
Having a bank account or a virtual piggy bank for your child is one way to show when something is bought with a card or electronically the value in this account is decreased brings back some connection between the physical and electronic. ATMs are a classic example, many children believe money comes from a machine in the wall. Understanding where money comes from and how it is earnt is definitely something to explain to children at a young age.