The importance of teaching our children how to manage their finances (and their earning, saving, and borrowing) at an early age cannot be over-emphasized.
As a parent, you teach your 5-year-old that sharing is caring. You teach your 8-year-old that working your way to success is a good thing. You teach your child that earning, saving, and managing money is important even if it doesn't feel fun. You teach your child that saving money for something they really want is important. You teach your child that investing for the future is important. You teach your child that managing money is a skill that pays off.
As you read this, you get the sense that you are doing something important. You realize that your decisions have a tremendous impact on the future of your child's life. You realize that you are shaping your child's future and that you are making choices that can have a lasting impact.
In too many families, the opposite is true. Too many parents are negligent, and too many parents are downright careless. They hand over money to their kids without teaching their children how to earn, save, and manage money. They hand over money without teaching their children that saving and investing are important and that money is a tool that makes it possible to achieve desired goals.
We come across many examples where children fail to manage their finances well. Some children spend all their money and do not have anything left at the end of the month or year. Many children borrow to excess and do not pay interest back. Some children spend all their time playing computer games and do not go to school.
Our tips can help you teach your child about money management and responsibility.
How To Bring Up Money With Your Kids
A lot of parents assume that kids should learn about money in school, but very few schools spend much time on it. So parents need to teach money at home. Explain to your kids the importance of money. They need money to do the things they want to do, and to pay for the things they need to buy.
Talk to them about money - it's never too early. Provide financial education to children starting at an early age so they grow up to be financially savvy adults.
Teach your children how to manage their finances at an early age. Teach your children about earning, saving, and borrowing. Help your child understand what is money and where it comes from. Explain that earning is when you work for something and you earn because you worked hard.
Saving is when you save some part of your earnings after spending only what is necessary. This helps in building wealth.
Borrowing and credit is when you borrow money. You borrow from a bank, friends, or relatives. You repay money with interest. Help them understand that money is like gold. You need it to live. You need it to buy things you need.
A lack of money knowledge among young people is not just a matter of them not knowing how interest works or what compound interest is. If you don't explain money, your kids are unlikely to get anything right. Their lack of knowledge can confuse them about other things too.
Have Your Kids Work For Their Allowance
The idea of an allowance, at least the way it is most common, is that your kids get paid to do stuff. The allowance is supposed to make them more productive, but it doesn't.
Kids respond to incentives. If they get money just for showing up, they do. If they get money only for completing tasks, they don't. If they get money just for working, they work harder.
But the incentive of having to earn money is an artificial one. What you really want is for your kids to earn money the way grown-ups do: through meaningful work.
So give them chores to do.
Parents need to make sure their children get good food, good housing, good education. They also need to be good role models. Children are like sponges. They learn everything they know from what they see.
If you’re a parent, both you and your child will end up spending a lot of money at some point. Practicing sustainable budgeting is key to raising financially responsible kids.
Lastly, teach your kids that money is not the most important thing. The most important thing is the knowledge, skills, and experience they acquired in managing their finances at an early age.