A lack thereof may even ruin their lives, including their children and their grandchildren. Unfortunately, school curricula makes little or no space for imparting financial lessons to kids; therefore as a parent, it is your duty to teach your children valuable financial lesson that’ll shape their lives and future.
Raising money-smart kids means you start early in their childhood and keep reinforcing the lessons as they age. According to a report by researchers at the University of Cambridge commissioned by the United Kingdom’s Money Advice Service, kids’ money habits are formed by the age of seven. Author of New York Times bestseller Get a Financial Life, Beth Kobliner who spoke to Forbes adds that children, even as young as three years old, have the ability to grasp financial concepts like saving and spending.
Below are some financial lessons you can teach your children:
Budgeting: Described as the foundation of successful personal success, budgeting helps in managing money by way of financial goal setting, forecasting future resources and needs, monitoring and controlling one’s income. Teaching your kids to budget would serve a useful purpose while they are in school. But it doesn’t just happen, it requires that you give them hands-on experience. Therefore start by putting some cash into your kids’ hands, in other words, give them allowances.
Kobliner says, “The sooner parents start taking advantage of everyday teachable money moments, the better off our kids will be.” Why is that the case? “Parents are the number one influence on their children’s financial behaviours,” she explains. “It’s up to us to raise a generation of mindful consumers, investors, savers and givers.”
Also remind your kids to avoid borrowing money from others, and to always pay back what you owe.
Again, giving kids an allowance will also teach kids to introduce and enforce good budgeting habits, contends Neale Godgrey, author of Money Doesn’t Grow on Trees: A Parent’s Guide to Raising Financially Responsible Children. She spoke with Bankrate.com, suggesting that you start giving your kids allowances when they start demanding, “I want this” or “I want that”.
She also recommends you pay your child’s age in dollars per week. “So a 3-year-old gets $3 a week, a 10-year-old gets $10”. However, you as a parent can give them whatever amount you feel comfortable with.
Savings: Simply explained as income not spent, savings are important money skills to master. While children are growing, they want to buy and eat everything. Instead of allowing that to bother you, you can use this as an opportunity to teach them how to save.
For instance, if you go into a shop to buy groceries and the kids ask for a new toy, you can teach them how bad spending habits can sting. Explain why you went to the shop in the first place (to buy groceries and not toys) and teach them that if they really want the toy, they can save up their allowance and buy it another week. Help them to create saving boxes or jars, and label them as follows:
‘Savings’, ‘Spending’, ‘Charity or Sharing’. Explain to them what each of these mean and let them drop a portion of their allowances or cash gifts in each of them. They can divide the money into three equal parts, but no matter how you do it, you are telling your kids: save, spend and give.
This means that from the first time your kids receive money, “they will learn not to live paycheck to paycheck and spend 100 percent of their money,” notes Lori Mackey, author of Money Mama and the Three Little Pigs.
Delayed Gratification: Also known as deferred gratification, this refers to the ability to resist the temptation for an immediate reward and wait for a later reward. There’s a wonderful study about delayed gratification and behavioural patterns of children called The Marshmallow Study. Each child is given one marshmallow in the beginning. They are given the option to eat two marshmallows if he or she doesn’t eat the first marshmallow immediately. All they need to do is wait for the adult to return after an errand (for 20 minutes) and they will get two marshmallows instead.
After the children in the experiment finished high school, it was revealed that the children who can wait developed positive habits for pursuing long-term goals with their jobs, health, and relationships. Those that did not wait had issues with distractions and a lower control over their impulses, being more troubled and indecisive.
Patience, focus, and motivation can’t be taught, but they sure can be trained with delayed gratification.
For your high school grads
For grown up kids 18 and over (especially college students), financial skills are crucial since they qualify to apply for loans and credit cards. It is during this period that you should engage them in financial decision-making as adults. Help them set short, medium to long-term goals that they can save up to reach. So instead of spending too much on leisure activities and extra electronic gadgets, focus on the essential expenditures like food, clothing, and shelter. Remind them to earn money beyond those expenses for the extras. This way, they’ll learn to live within their own means.
Teach the child which way to walk, and when he has grown up he will not depart from it, says the Bible. If you guide your kids to master these small but important money lessons, they are more likely to lead financially disciplined and overall successful lives as adults.