Teach Your Children the Value of Money
From Financial Literacy Wiki
Teach Your Children the Value of Money
All parents want to teach their own children to form healthy savings habits but have no idea how to go about. This articles aims to help parents to achieve their aim, providing their children the most important financial life skill.
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Before You Start
- Discuss with your spouse what are the financial knowledge and priorities you want to teach your childrenso that you'll both be on the same page when it's time to talk to the kids about financial priorities.
- Always note that you need to place yourself in your children’s shoes, understand their thoughts, opinions and financial priorities as they grow up and impart the knowledge accordingly. Ask them if necessary, do not assume that they can understand what you are imparting.
Teach Your Children the Value of Money
Although there is an emphasis to add financial literacy into the school curriculum but sad to say, it is still inadequate. Most kids just learn the very basics of money usually associated with saving. That means it is up to all of us to see that our children reach adulthood prepared to face life's fiscal challenges, like retirement planning
The Earlier the Better
Teaching your children about money early on allows them gain more as compared to those children who start late.
In the short term, they may develop good saving habits, learn how to make smart purchases, begin to understand the true meaning of terms like "investment", “insurance”, “inflation”.
In the long term, you can help them avoid accumulating debt. And by teaching the value of saving for the future and later on, insurance planning, you can help them plan for financial security. As you think about how, what, and when to teach your children, consider letting them direct you by using their natural inquisitiveness. But do start early by exposing them to more ideas. You can make them be inquisitive by asking them to ponder some simple questions like, “Ever notice that how come some candies are more expensive than others?” – ie. starting on their journey to understand what is Wants and Needs.
Where Does Money Come From?
An ideal time to begin teaching your children about the basics of money is when they first begin to ask questions about it. In a child's world, money comes from parent’s pockets. And when Mom and Dad slot in a card and push a few buttons, a machine magically spouts dollars. Or Mom flashes a magic card and we can take our groceries and my candy out. With such observations, it's natural for them to assume that money is readily available whenever it's needed.
When they can't understand why you can't meet their every demand, instead of choosing the easier way out with a response such as, "Money doesn't grow on trees", remember that a more constructive explanation may serve both of you better.
Even very young children can begin to understand the concept of earning money. Explain to your children that there are many sources of income but all needs effort to build it. To help them understand more about managing money, begin paying an allowance. Then help them set goals for how they spend and save their allowance.
Make Saving Interesting
You hear it every time you walk by a candy or toy store: "I want this...Buy me that... !" Again, pause and take a moment before responding. This situation presents a great opportunity to teach another important lesson about personal finance: savings and interest. Explain that people often save their money for items they want to buy.
A simple savings lesson involves using a piggy bank; or have fun by having your children getting and decorating an empty container to be their savings bank. Explain to them how you also use a real bank to save your money. Get your children to save for a special goal, like buying a gift for Mother’s Day or Dad’s birthday. Write down the goal and define how much the gift is. Help them to work out a savings schedule, and reward them when they stick to it consistently. As they save money, you might reward them with a small additional amount, just like a bank pays interest.
Last, to further encourage the learning process, you might consider plotting a visual chart of their savings so they can easily see their savings grow. Remember the time when you have your kid to stand at a wall and you mark out how tall it is. That special wall became a great timeline to see how fast your kid grew. Do the same with their savings.
Banking and Investing
Once your children have developed a strong saving habit, it is time to take them to the bank to open their first savings account. Local banks like POSB and OCBC allow children to open first accounts with no minimum amount required. They even have accounts especially marketed to kids to make the learning process fun. They also give out savings passbook so that your children can see the progress of their savings efforts, as well as the interest that accrues. Once your children is familiar with banks as a savings institution, you can begin to teach them about investing. When your children want something that they can't quite afford, discuss the value of saving versus borrowing.
If you do lend money, use a written IOU, establish a repayment schedule, and charge interest. By doing this, you let them experience what the real world is, in terms of borrowing. Also you can take the opportunity to teach your children that the higher the interest rate, the more they have to pay monthly to pay back the loan. It also establishes the framework for teaching your children that bonds and certificates of deposit are IOUs representing loans from investors to institutions.
Compounding
As your children get older review the lesson of compounding, or the ability of earnings to build upon themselves. Explain how compounding can be more dramatic over time; the longer money is left alone, the greater the effect. You can use charts or Excel spreadsheets to show them the power of compounding and at the same time teach them how to use Excel for simple personal accounting.
A Little Learning Can Pay Off
Teaching your children about our complex financial system may seem daunting, but you can help put your child on the right track by encouraging smart habits now. Is it worth your time and effort to help your children learn about money? As Benjamin Franklin once said, "An investment in knowledge always pays the best interest." Answering your children's questions honestly and in terms they can understand help them begin life on sound financial footing.
