As your children grow older, their wish lists often get more expensive. It becomes second nature for them to add stuff to their online carts. Plus, many want instant gratification. They want their boba drink delivered now, and their packages should arrive the next day. Some kids even throw a tantrum if they don’t get what they want. As a parent, you have a choice. You can give in and cater to every whim. Or you can take this opportunity to teach life lessons.
Cliché phrases like money doesn’t grow on trees isn’t enough. You need to explain the concept of income and how it is earned. Kids should have an idea of how many hours must be put in before someone gets a paycheck. If they understand the amount of hard work involved, they’ll get a realistic picture and won’t take money for granted.
To prepare your child to make good financial decisions, you need to start early. Here are five tips on how to explain financial literacy to kids.
1. There’s a Process Behind the Plastic
Since paper currency has largely been replaced by plastic cards and digital wallets, kids might assume parents have unlimited funds. If only that was true! Explain to them that getting a card requires you to build and maintain a good credit history. It’s important for them to understand one must prove they can afford to pay off the card. For instance, most banks will require verification of income before approving a car loan or credit card application. If that’s a difficult concept to explain, you can check out this site for more information on income verification.
No conversation about credit cards can be complete without mentioning the dangers of debt. Kids might not understand the concept of interest, so tell them you’ll lend them $1 on Saturday. If they pay back in a week, they’ll return just the original amount of $1. If they don’t pay on time, they’ll have to repay $2 next week or $3 the week after. By simplifying figures and making them participate in the exercise, the concept of interest will be drilled into their minds.
2. There’s Always a Limit
Staying within your limits is a life lesson that cannot be underestimated. Whether it’s their allowance or the gift money they got from grandma, kids should learn how to budget. Teach them how to plan how much they want to spend and how much they want to save. Encourage them to have a saving goal through which they can buy some toy or gadget they’ve been eyeing.
Not every child will understand these concepts immediately. They may make mistakes and that’s just part of the learning process. Encourage them to start saving again if they send their money on the wrong things. Teach them how to weigh their decisions. Remind them that every time they buy candy they’re further away from getting the video game they want.
3. Think Long-Term
Investing teaches patience and shows children how wealth can grow in the long term. Pretend to be a bank. Tell your child they can save their money with you for a profit at the end of each year. Let them make decisions, so they feel the crunch of giving money and the joy of getting money. As your child grows older, take it up a notch and teach them about compound interest too.
Explore age-appropriate investment options and strategies for kids. If your teenager shows a keen interest in this field, you can talk about opening an investment account for them. The account will make them feel independent but have the safety net of being monitored by a guardian. There are plenty of good investment accounts for kids.
4. Needs and Wants are Not the Same
The toughest lesson a parent can teach is that delayed gratification can contribute to long-term financial success. You must nurture patience in your children and teach them to think before spending. Nowadays, kids have the mall in the palm of their hands and every purchase is just a click away. Targeted advertising is the new norm. Try installing apps that block ads to help reduce temptations.
Teach them how to differentiate between needs and wants so they can shop less and save more. If they’re buying jeans, show them the price difference between a high-end and a regular store. Remind them how quickly they grow out of their clothes and need new stuff. In most cases, kids learn from their parents. So, you’ll have to be less brand-conscious yourself if you want your kids to spend wisely.
5. The Importance of Giving Back
Another avenue where you can lead by example is philanthropy. Participate in fundraisers and charity events and take them along. Share your experiences and how good it feels to be helping others in need. Encourage them to donate — even if it’s a dollar or used toys — to remind them of their social responsibility.
While you want your child to be financially stable, you don’t want them to become Uncle Scrooge. Cultivate generosity and empathy by donating to international welfare agencies and sharing stories of children their age in war-torn areas. There are many ways giving back can be fun. If your child enjoys certain activities, see if there’s a way to serve others with their skills. Whether it’s sending a beautiful card to a soldier or baking cookies for sick children, learning to give is one of life’s most important lessons.
The Value of Money
Some parents may feel their kids might become materialistic if they talk about money from a young age. They may argue kids should enjoy their carefree years. However, like eating your greens and flossing regularly, good habits start early.
As a parent you want your child to succeed in the future. That means laying the groundwork today. Children need to be taught the value of money so they can make better decisions. Financial resilience can make children level-headed and future-minded. Being conscious of how money is earned and spent can help them for the rest of their life.