by Munmun Nath, on category "Personal Finance"
May 25, 2019
Just like all good habits, teaching your kids how to save money early in their lives will go a long way. Research by the University of Cambridge shows that money habits in kids may be formed as early as age 7. Kids learn a lot by observing how adults behave. Try telling your child that you have no money for a toy purchase and their response might surprise you! From “let’s go to the ATM”, to “use a card”, their response will be based on their observations of how you transact and shop. Their minds are curious about money even if they may not say so. So during shopping trips or ATM visits, take the opportunity to explain money and finance concepts. This would help them form thoughtful money habits early in life. What money concepts should you start with? Based on my personal experience, here are three starting money lessons for kid that I recommend.
The key concept to teach is the purpose of currency and different formats of currency in use. Start by exploring the following ideas:
Money games – I often ask my 5-year-old to group coins by different denominations or in stacks of ten and to tape them. This helps her understand the difference between the quantity and value of the currency. Other fun games are matching the country to its currency, guess the coin names, etc.
Play money – Give your kids play money that will help them get hands-on experience with storing and exchanging currency. If you want to give them a more real-life experience, you can then take them to Kidzania. There they learn how to earn money and pay for services. You can use this as an opportunity to teach them about real and fake peso bills.
When kids see us using a credit card or taking cash out of an ATM, they might start getting an idea that money is infinite. Hence, one of the earliest money management that I focused on is that money is earned by doing valuable work. It is very important that our children understand that the time we spend working is what helps us give them the lifestyle they have. Help them understand that when they grow up, to lead a similar or better lifestyle, they too have to work hard or harder.
Discuss career – The most common question kids get asked is “What do you want to be when you grow up?” Correlate this question with how different professionals earn money. Tell them what you do for a living and why you chose this career. Share inspiring stories about kids who started earning at a young age.
Give commissions – Giving a regular allowance to kids is not a great idea because they might start taking it for granted and feeling entitled to it. Instead, give them a commission for helping you out in household or other activities. Give them age-appropriate jobs and pay immediately. Let them help out neighbours or your colleagues. Give them the opportunity to learn new skills as well as work ethics.
Parents of young kids often dread visiting a toy store for the fear of what tantrums they might have to deal with. Delaying gratification is hard for all ages. But research shows that those who learn to delay gratification early in life are more successful in the long run. The third early lesson we need to teach our kids is to not act on their impulse to buy. Do not say “we can’t afford it”. If you do, they might wonder how we can afford certain other things but not what they want. Instead, introduce budgeting and the idea of wants vs. needs. This is the perfect segue to introduce the idea of saving money.
Price comparison – Discuss price labels of toys and compare them to prices of other items such as a meal or a book. Teach them about price comparison and how they can get a better deal on their purchase by comparing different toys or stores. Help them understand how they could get the ‘best value for money’. Finally, to make these trips easier for you to handle, keep these best practices in mind.
Goals or saving challenges – Ask them to create a wish-list for all the items they want to purchase. Then ask them to try out some of the popular ipon challenges listed here to motivate them to save money for these wishes. When they have saved up, explain to them what else they could get for the same amount and ask them to choose what is most important for them. This will help them understand ‘opportunity cost’ and ‘prioritisation’ of what they most desire.
Piggy banks/saving jars – Gift them piggy banks in shapes of their favourite cartoon characters or clear jars. Allow them to claim loose change they can find around the house. If they have not saved enough for what they desire, teach them that to get more money, either they have to save more or earn their commissions.
Kids bank account – 8 out of 10 Filipinos do not have bank accounts. Hence, to teach your kids the importance of having one, open their own bank account. Going to a bank will help them understand that banks and ATMs are not infinite sources of money. Also tell them about different banking services and how they can help us achieve our life goals. Read more about the best saving accounts for kids here.
A wise person once said to me “a child builds the parent’s character”. We parents love to teach our kids but often in the process of teaching them, we learn a lesson or two as well. I am sure these personal finance lessons to teach kids how to save and manage money will force us to examine our own approach towards budgeting and help us make thoughtful financial decisions.
Mommymax is a series of articles that explores financial literacy for parents and tips on how to save money yet give the best to our children. In this article, we discuss fun ways to teach our children three very important money lessons so they grow up to lead healthy financial lives.