Financial Literacy simply put, is knowing how money is made, spent, saved as well as the skills and ability to use financial resources to make informed decisions. It is the ability to understand and effectively apply various financial skills, including personal financial management, budgeting, and investing. Building financial literacy for kids involves taking proactive steps to mold positive behaviors around money handling that can counteract marketing and social influences.
Teaching children about finance is an important aspect of education that ought to be incorporated both at home and in school. Never think it is too early to tell children about finance, let the conversation begin early by distinguishing between needs and wants. Children need not get all they ask for, reward for children should be checked and effort ought to be made to ensure children do not begin to have a feeling of entitlement towards certain rewards they receive from parents.
Here are few aspects to guide in teaching children about money:
1. Discuss wants vs. needs:
The first step in teaching children the value of money is to help them distinguish between wants and needs. Explain that needs include the basics, such as food, shelter, and clothing, and wants are all the extras. Explain important concepts like savings, a budget and goals- then keep the conversation ongoing
- Saving money is a habit that children should be taught at a young age.
- Giving children an allowance can teach them the value of money and the importance of hard work.
- Children can learn the importance of living within their means, which is one of the basic tenets of saving.
2. Set a Good Example
It is an age long saying that you cannot give what you do not have. As a parent, you have to model financial prudence for the children to see. Be honest with them about what you can and cannot afford. What you really want, but honestly have to pass up due to your budget. For example “I really want this car, but I don’t truly need it. I will put it on my wish list.” As a parent you need to be honest with yourself as regards your finances and do not try to keep up with the Joneses. It is too much pressure and you are teaching your children to go down the wrong path.
3. Set Savings Goals
To a kid, being told to save—without explaining why—may seem pointless. Helping children define a savings goal can be a better way to get them motivated. If they know what it is they want to save for, help them break down their goals into manageable bites. For example, if they want to buy an item help them figure out how long it would take them to save a certain amount based on the allowance they get. Make it fun, make it a family affair and hold each other responsible.
4. Provide a Place to Save
Once your children have a savings goal in mind, they’ll need a place to put away their cash. For younger kids, this may be a piggy bank, but if they’re a little older, you may want to set them up with their own saving account at a bank. That way, they can see how their savings are adding up and how much progress they’re making toward their goal. Younger children might keep their savings in a piggy bank, but older ones might want to keep their money in a real bank while working on their goals.
5. Have Them Track Spending
Part of being a better saver is knowing where your money is going. If your child gets an allowance, having them write down their purchases each day and add them up at the end of the week can be an eye-opening experience. Encourage them to think about how they’re spending and how much faster they could reach their savings goal if they were to change their spending patterns.
6. Talk About Money
If you want kids to learn about saving, it must be an ongoing discussion. Whether you schedule a regular weekly check-in to talk about money or make money chats part of your daily round, the key is to keep the conversation going. You do not have to offer every single detail, rather give them the basics. We have an income, we have expenses. We need a budget. We need to make choices. There are opportunity costs. Take them through the process of budgeting, savings and investments first, then bills and needs, and then fun things. Let them join in drawing up the grocery budget; make them join you while you shop.
8. Leave Room for Mistakes
Part of putting kids in control of their own money is letting them learn from their errors. It’s tempting to step in and steer kids away from a potentially costly mistake, but it may be better to use that mistake as a teachable moment. In that way, they’ll know in the future what not to do with their cash.
For every milestone achieved in this journey, it is important to celebrate and appreciate the children to encourage them to do and learn more. Teaching children about finance is a gradual but rewarding process, the challenges abound but the joy in having a financially literate child grow into a responsible adult outweighs all hurdles encountered in the process.
