Teaching your child the value of money

Many parents tend to treat children as young adults who should by default know how to be responsible with money. We often overlook a simple fact that children need to be taught about money management and most importantly, they need to see us practice what we are trying to teach them.

Interestingly, studies have revealed that kids often learn about money from external sources and the media than from their parents. Parents avoid talking to children about financial matters – how much they earn, how much things cost, what is the family’s cost of living – believing that the little ones are too young to understand money matters.

On the contrary, psychologists believe that the sooner a child is introduced to the concept of money, the better.

Given below are some simple yet effective ways to make your little genius develop habits and attitudes that will help them understand how money works, and how it can be used more efficiently.

Money does not grow on trees

Children are keen observers. They notice parents drawing money from the ATM and tend to think that getting money is as easy as walking up to a vending machine.It might be a good idea to take your child to the bank and let her learn that an ATM is owned by the bank which is a safe place to keep your money. Most banks allow children above ten years to open an account in their own name. This is a nice way to inculcate a sense of responsibility and ownership in your child.

Use cash to pay bills

Plastic money is so volatile that even adults fail to realize how much they have spent until the monthly statement comes knocking. It’s good practice to pay in cash before kids. When they see you shelling out real money for that expensive toy, they will likely take better care of it. Another advantage of paying in cash is the coins the cashier returns. Your child can save coins in a piggy bank and use it on special occasions. These early lessons will lay the foundation of saving money and deciding how and when to spend it. 

Money is first earned then spent

Children have some idea about your work but they may fail to understand that you work for money. Once in a while, take your child to your workplace. She will get to know how you spend your day and get paid for the job. Or take them to a place where people work and get paid –a garage for example, where the mechanic will service your car and get paid for it.

Experts recommend assigning the child a chore in return for an allowance to show them that one needs to work to earn money.

Playtime with money 

Most children are fond of playing board games involving transactions of money like Monopoly, Business etc. You can contribute to the learning by asking your child the reason for their decisions to buy or not buy a property. You can encourage them to play Shopwhere one child volunteers as a shopkeeper and the rest as customers.

In a recent study published in Oxford Journals, Shawn Cole, professor of finance at Harvard Business School, suggests that we don’t really need to teach children a lot about finance. Teaching them more math is likely the best way to teach them money management.

There you go! Strengthen their math skills and you’ll have less trouble teaching them about money.  

Saving for the future is not that tough 

Research published in the Journal of Consumer Affairs (January 2015) indicates that children as young as five are capable of understanding the concept of saving, and it is also the right age to introduce your child to a savings account.

Money can be saved in various ways. Take your child’s help in storing those discount coupons you keep losing.  This way she will get to learn the concept of discount offers and ways to redeem them to save money. The amount saved by way of using these coupons can be used in buying her a token of appreciation for her efforts.

A parting thought: Wouldn’t it be great if schools introduced financial education for children at an early age, where they could learn the concepts of saving, spending and budgeting, and apply them in their little world of piggy banks and pocket-money.

References

http://onlinelibrary.wiley.com/doi/10.1111/joca.12062/full
http://rfs.oxfordjournals.org/content/early/2014/02/26/rfs.hhu012
http://www.tandfonline.com/doi/abs/10.1080/08824096.2014.907147?journalCode=rcrr20#.Vczhp7Kqqkq