Teaching children and teenagers about money could help them establish an active sense of good financial habits for the future. Letting your children develop good financial habits, helps them face and be ready for the financial affairs of the future and to know the role and advantages of budgeting, savings and investment.
Given how essential financial capabilities are to navigating life, it’s alarming that the school system doesn’t teach children about money.
As a parent, you should teach your child important financial skills.
Beth Kobliner says children as young as three years old can grasp financial concepts like saving and spending. And a report by researchers at the University of Cambridge commissioned by the United Kingdom’s Money Advice Service revealed that kids’ money habits are formed by age 7.
“The sooner parents start taking advantage of everyday teachable money moments (for example, give a six-year-old $2 and let her choose which fruit to buy), the better off our kids will be. Parents are the number one influence on their children’s financial behaviors, so it’s up to us to raise a generation of mindful consumers, investors, savers, and givers,” she says.
Budgeting means creating a plan to spend money. The spending plan is called a budget. Creating this spending plan allows you to ascertain beforehand whether you will have enough money to do the things you need to do or would like to do (to settle bills, or buy some things). Budgeting simply means balancing your expenses with your income.
Savings means money you set aside for future use rather than spending immediately. Along with the benefits of saving up for future use , delaying an impulse purchase also helps you decide whether it is something you really need, or something you will regret shortly after buying.
Investment is the act of putting out money in order to gain a profit. Investments are things we put our money to help it grow.
How to teach your child Saving, budgeting and Investment
Create three jars for your child – each labeled “Saving,” “Spending” and “Sharing” respectively. Every time your child receives money, whether for doing chores or from a birthday or as a gift, tell the child to divide the money equally among the jars. Have him or her use the spending jar for small purchases, like candy or something inexpensive that she wants. Money in the sharing jar can go to someone your child knows who needs it or be used to donate to a friend’s cause. The saving jar should be for more expensive items and for a long period of time.
Give your child some money, like N2000, in a supermarket and have her make choices about what cereal to buy, within the specifications of what you need, to give them the exposure to making choices with money.
Have your child set a longer-term goal for something costlier than the toys she may have been saving for. “Those sorts of exchanges, called opportunity costs — what are the things you have to forgo to save money — is a very important thing to talk about. These days, children are reluctant about saving because they want to buy stuff, but thinking of what long-term goals are and what they’re having to give up shows that it’s a good decision,” says Kobliner. For example, she says, if your child has a habit of buying a snack after school every day, she may decide she’d rather put that money toward an iPod.