Money can be a challenging topic to discuss – especially with your children. Financial literacy from a young age can help shape how your kids view and manage money for the rest of their lives.
Without a solid understanding of money and finance, it can be difficult for kids to have a healthy relationship with money in the future. There are different ways to approach conversations around money in a way that’s exciting as well as educational for your children.
When’s the right time to start teaching financial literacy?
Financial literacy is the ability to make informed judgements and effective decisions about the use and management of money. Teaching kids about the economy early on will set them up for their financial future. Research shows that people with a limited understanding of money matters are more likely to have lower education levels, be unemployed, receive lower incomes and have minimal savings.
Financial habits can be set as early as the age of 7. However, there’s no reason you can’t start talking to your children about money management earlier. You don’t need to be an expert to talk about money – incorporating it into everyday life is one of many ways you can introduce this topic into discussions with your children.
How should you approach it?
Finance probably isn’t going to be at the top of most kids’ list of fun things to talk about! Turning these conversations into games or explaining real-life situations can keep children engaged.
We’ve listed some entertaining ways to approach financial literacy below.
Make a game out of it
For younger children, playing games like ‘shop’ can keep things interesting. You can introduce terms like ‘dollars’, ‘cents’, ‘spending’ and ‘saving’. You can teach them different payment methods too, such as paying by cash and paying by card, ensuring you always talk out loud so your kids are familiar with the terms you’re using.
Include older children who understand the basics in your weekly shop. Challenge them to look through catalogues and online to find the best price. Board games that include money, such as Monopoly or The Game of Life are also great interactive ways to teach your kids to manage their money.
Let them earn it
Giving your child the opportunity to earn an allowance will help them manage their money and the responsibility this involves. Whether it’s chores around the house, or running errands for neighbours, rewarding your child with money will show them the value of hard work. This could later go into a broader discussion around the value of money and their values overall. You do want to draw the line at sending the message to your kids that they will get paid every time they do something.
Regardless of the amount you choose to give them, ensure you withhold or reduce their pocket money if the tasks are not done, or not done properly. This helps to teach kids that they only get paid when work has been done to a certain standard.
Pocket money can help instil a saving mindset. If there’s a toy or something your child wants, teach them to save up for it.
Work on a budget to show them how long it will take them to save the right amount to make the purchase. The pride they’ll feel when purchasing their desired item will lay the foundation for positive saving habits.
Include them in your finances
If you feel comfortable, include children in your family finances. Talk them through your family’s budget, including where your money goes each month and how some bills change based on usage (e.g., spending a lot of time in the shower can increase your water bill). If your kids earn their own money, help them create a budget for their allowance too.
If you’re out at the shops, let your child know how much you want to spend to get everything you need. Challenge them to find these products, adding up as you go to make sure you don’t go over the allocated amount. This will also help them to understand why they can’t get that chocolate bar they want!
Allow them to make mistakes
Part of financial literacy is making mistakes and learning from them. Teach your children the importance of saving their money for something special.
Some children will be impulsive and spend their money on lollies, cheap toys, or something that gives them instant gratification. If they do this, remind them of their saving goal and that buying something now will set them back. If they’re still willing, let them make the mistake as they will learn from the consequence.
What are the benefits of educating your children about money?
Good habits aren’t automatically formed – they need to be learnt. Teaching your children good money habits has a range of benefits that will set them up for the future.
Research shows the benefits of teaching positive money habits includes:
- Teaching your kids the value of saving money
- Instilling self-discipline
- Boosting their self-confidence
- Improving their financial management skills
- Helping them realise the value of hard work
- Building their leadership skills
- Introducing the relevance of success at an early age
As your kids grow older, teaching them about investing their money can also be valuable. It’s another important lesson in money management and dealing with the result of risks you may take.
Is there anything you should be cautious of?
Kids are like sponges – they absorb and learn from those around them – specifically their parents. There are some things to be wary of when it comes to financial literacy.
Common mistakes include:
Money is a taboo topic
It’s often an unspoken rule that money is a ‘taboo’ topic, but it shouldn’t be. Experts say, “When you don’t talk about money in your household because you don’t want your kids to worry or because you don’t think it’s important that they are involved, you’re teaching your kids not to talk about money, and you restrict the opportunity for learning valuable money lessons early on.”
Despite your financial situation, talk to your kids openly about money so it doesn’t become a negative topic to talk about later in life.
Money ‘grows on trees’
Teaching your kids that ‘money doesn’t grow on trees’ will instil in them that money is earned, not given. By saying yes to buying whatever your child wants, or giving them money every week without them doing chores, you’re teaching them that there’s always money around. Be sure to get them to work for their money by doing chores or errands so they learn the value of hard work.
It’s just a ‘grown-ups’ thing
Money involves everyone – even the kids. If parents don’t talk about it, the overall topic can be viewed by children as a ‘grown-ups’ thing. This doesn’t allow kids to start learning good habits and assumes money is something that you manage when you’re older. Talking your children through things outlined in this blog will help them create good habits.
Impulse buying is normal
It’s easy for parents to give in to children’s spontaneous requests. This could be anything from constantly buying toys or giving in to requests for ice cream or other treats when you’re out. Impulse shopping can lead to dangerous behaviours in your children who may view impulse shopping as normal. There must be a balance in your approach, or otherwise, they will grow up with unrealistic expectations that they can and should be able to afford whatever they desire.
Wants and needs are not the same?
There’s a big difference between things you want and things you need. Teaching your children this is important. Things like shelter and food are needed as opposed to new toys and other treats. One thing to keep in mind though is you can’t teach your child the difference between needs and wants, or even the value of saving if you are continually swiping a credit card for everything.
Teaching your children valuable lessons about financial literacy from a young age will frame their future money habits. You don’t need to be an expert on money to teach your kids the importance of spending, saving, and investing. If you’re not sure where to start, talk with one of our team financial advisors today.