Teach your kids about money | 16 September 2019
Children are taught many important skills to develop their potential and ability to make the best choices as they grow into adulthood. Given the importance of financial capability, it is equally essential to teach children about money matters at a very young age.
Here are some practical tips on how to raise ‘money smart’ kids and give them a head start when it comes to managing their finances:
- Introduce your kids to money at an early age
Children start to understand the concept of counting as early as the age of 3, and this is also an excellent time to start introducing them to money. Coins are great for learning how to count and understand value. Once they have grasped the concept, the idea of saving can also be introduced. A piggy bank is a great idea, but a clear jar where they can see the money ‘growing’ is even better.
• Set an example
Children look up to their parents for guidance and support. It is also important to be aware that your kids are also watching your money habits. Going shopping? Involve the kids as you draw up the shopping list and stick to it. Set a good example and they’ll be likely to follow it.
• Show them how it works
Explaining to children how money is used to pay for things is a good start, but getting them involved in paying for something can provide an even better understanding of how it actually works. Buying your child that R25 toy he desperately wants? Why not have him grab that money from his piggy bank and hand it over to the cashier. That simple action can go a long way in helping the young child to understand that things cost money.
- Teach children about making money
This can be particularly considered for the older ones, at secondary, post-secondary and even university level, where in many countries, parents encourage their children to seek an after school or holiday job. This is a good way to teach them that money is earned and not given freely, while also helping them to acquire professional skills, such as developing a sense of responsibility.
• Get them acquainted with a simple budget
As kids get a bit older they should learn the importance of financial goals and making plans for their money. Take the opportunity to show them how to budget, distinguishing between their needs and wants. Teaching them to set short, medium and long-term goals and work towards achieving them is also essential. Is your child keen on having a smartphone, for example? Encourage him/her to set aside some of the monthly allowance and contribute towards the cost. With teenagers being tech-savvy once the phone is in hand, why not download a simple budgeting app.
• Teach delayed gratification and opportunity cost
Children need to be taught that they may have to wait to buy something they want and the impact of the decision to have one particular thing. Do not miss out on explaining to children that often, purchasing something is not only about the cost but is about choosing what would be more beneficial. Get your children to understand what that means by allowing them to participate in the family’s discussion and decision-making process.
• Talk about debt
As we all know, getting into debt is sometimes inevitable, particularly for life’s most important purchases. Get your children to understand the difference between good debt (borrowing money to purchase or invest in something that will grow in value and generate long-term income – such as buying a house, or pursuing further studies) and bad debt (money borrowed mainly for consumption or to purchase things that will quickly decrease in value – such as branded items, latest technology or going on holiday). Explain the pros and cons of taking loans so that they can make informed choices later on in life.
- Teach your children about savings and investment
Opening a savings account for your children is a way of showing them that you are investing in their future and teaching them about how interest works. Encourage them to contribute towards this investment, by saving money received as birthday gifts or for other occasions into this account. You may also consider other investment products, such as an insurance plan in your child’s name. Be sure to include your child in such discussions and the decision-making process.
- Nurture your child’s entrepreneurial spirit
Consider this interesting real-life example of a family instilling business skills in their children: the youngsters were responsible for picking and packaging chilli grown in the family’s garden and selling the ‘product’ to the local shop. They maintained ‘books’ and at the end of the year, dividends were paid to the ‘shareholders’ (the children) following a meeting of the ‘directors’ (the parents and children). This ensured that the children understood some basic business principles from a very young age. Encourage resilience, creative thinking, curiosity, and self-confidence in your child.
Teaching your children about money is going to take time and a bit of creativity. It won’t always be easy, but it will be worth the effort.
As the Governor of the Central Bank of Seychelles, Caroline Abel, said at the launching of Global Money Week 2019: "Money, ladies and gentlemen, is not a matter of importance that should be discussed only by the grown-ups. Adults should not be reluctant to discuss money matters with the younger generation, as their potential should not be underestimated.”
Contributed by the Central Bank of Seychelles as part of the Financial Education Strategy