‘Money, Money, Money …
Must be funny, In the rich man’s world …’ According to a study done by the National Council on Economic Education, a large number of adults and teenagers have little understanding of money management. The study also showed that up to 94% of the teens surveyed relied on their parents for money management guidance. It is never too early to teach your child how to manage money.
Here are some essential pointers to get you started:
1. Show Me the Money
2. Deliberate Goal Setting
Teach your child how to set purchase goals. If he wants to purchase a $100 bicycle and he earns $5 every week, he might have to save up to $20 for 5 months to reach his goal of purchasing his bicycle. It is best if you let your child set his own goals if he is grown enough to know the things he wants to purchase. It is also a good idea to encourage him to write down his goals and the amount of money required to meet the goal. For younger children, short terms goals are more realistic for them and they will be keener to achieve these goals. Your child can make his goal visual by sticking a picture of what he wants on his saving jar or in his room.
3. First Things First
Show your child the value of prioritizing and reducing expenses. For many children, as for adults, impulse buying can jeopardize financial goals. Teach your child to differentiate what he wants and what he needs; what is more important and what he can live without for a while. Does he need a new $50 skateboard when he already has one that works pretty well? Or does he need a new $5 winter coat to replace his old one? Teach him that needs are more important than wants and he should be careful to spend his money on those things that will add value and are more important.
4. Growing The Nest
Other than saving and prioritizing, it is important to teach your child about how she can grow her money. For a young school goer, you could open a bank account with her and explain to her that by placing money in the account, her money will grow and she will have more money than she put in. For the teenagers, you could teach them various investment strategies that they can use to grow their savings for the long term. The idea of having more money in the long term will certainly appeal to any child.
5. Debt Trap and Consumerism
Enlighten your children about consumerism and overspending. As young as 6 years, you could start to explain to your child about media adverts and how they can tempt you to buy, buy, and buy even when you do not need something. The lessons about prioritizing on needs and wants will come handy here. Your child does not have to buy everything she sees on TV. For the older children, especially teens, explain to them about credit cards and loans and how to avoid being entrapped in spiralling debt. You can allow your teenager to have a credit card with a small amount but discuss how she will pay her credit card amount. Make it clear to your grown child that she is responsible for her own debts.
6. Lead the Way
To impart financial literacy, you too need to learn and understand the basics of money management. It is also important that you spend money wisely, make budgets and goals, avoid excessive consumerism, debt and major financial problems. Be a good “financial role model” to your children.