This is the beginning of financial literacy for kids. Wow, financial literacy sounds like something that should wait until university. It is clearly important for everyone, but do individuals really need to start learning it when they’re still kids?
Yes, they need to start learning about money management before they even enter school. The habits that kids develop regarding money will provide the basis for solid financial decisions once they get older.
You might think that kids cannot understand how to delay gratification by understanding the difference between needs and wants, but you’re not giving kids enough credit. Money management for kids doesn’t have to be too difficult, but parents need to be consistent.
Let’s take a look at how kids can begin learning how to prioritise needs before wants as early as pre-school.
This is when kids can start learning that they might have to wait to buy something that they want. This is the very beginning of learning how to delay gratification.
Here’s a way to start teaching this. Take your pre-school child with you to the supermarket for your weekly shopping. On the way to the store, explain to your child that this shopping trip is to buy the family’s weekly necessities and that only items on the list will be bought.
When your child picks out something that he wants rather than needs, draw his attention to the list and say, ‘Let’s take a look to see if that’s on the list.’ When it’s not there, your child will start to learn the difference. On some shopping trips, you might give your child permission for one ‘want’ item, but not on every trip.
Create a saving jar, a spending jar, and a giving jar. When your child receives money, have him divide the money equally into each jar. Then on occasion, he can use money from the spending jar for small purchases.
You can also set a goal to buy something that the child wants. It should be something small so that he can achieve the goal before frustration sets in. When he has enough in his saving jar and actually makes the purchase, he is learning money management.
As the child moves to the top of this age range, the goal can become more long-term, and you can explain more about your own spending decisions. Make him part of the process of paying bills and making decisions about larger purchases.
This is the time to bring your child into the process of budgeting a certain amount of money each week for his needs and wants. It is important to have your child commit to a written budget that you have worked on with him and that he will be responsible to keep.
Model Correct Behavior and Be Consistent
Money management for kids is a matter of instilling the right habits from an early age. The most important determiners of whether you will be successful or not are your modeling and your consistency. If your child hears one thing from you but sees you putting wants before needs, he will be confused and not learn how to manage his money. Likewise, if sometimes you make him follow the rules and other times not, learning financial literacy will be slowed.
For more information about financial literacy for kids, visit our financial literacy basics section.