7 ways to teach your kids about money

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TABLE OF CONTENTS

Introduction

Your children come into this world knowing absolutely nothing. Right from the small things like their ABCs and 123s, to the big things like time management and physical activity, there are so many things that you - as a parent - need to teach your kids. They rely on you for all this education and more.

Parents across generations have risen to this challenge and have taught their children all the essential things. And yet, among the many things that are taught, there is one subject where education is often delayed until later - or sometimes, not taught at all. We're talking about money matters, of course.

Parents often put off teaching their kids about money until they are nearly adults. And this can be a costly mistake. It is always a good idea to introduce your kids to money management and money matters early in life. In fact, some experts recommend teaching children about finances as soon as they learn to count. Research also shows that many of the habits that adults have are typically formed by the age of 7. So, if you want your children to be clever about money when they grow into adults, it is necessary to teach them about money when they are young.

7 ways to teach your kids about money

So, we've seen why it's important to introduce your children to money matters early in life. This leads us to the next important question - how to teach kids about money?

Well, there is no single best method of teaching. Instead, what you can do is adopt some easy tips and tricks to introduce this subject to your kids when the time is right. Here is a closer look at 7 such ways to make your children familiar with finance.

  • Talk to your children about money

    Talking to your kids about money is one of the best methods of teaching. When you talk to them, they get a foundation on which they can build up more practical knowledge about money and finances. You can start by explaining the concept of money. Then, move on to tell them that before you buy something, you need to pay for it.

    For slightly older kids, you can also make use of board games like monopoly to introduce them to what money is and how it is used in the real world. These talks form the basis of how your kids understand money later in life.

  • Take them along to the grocery store

    One of the best methods of teaching children how money is used in your everyday life is to take them along to the grocery store. It's a win-win because the outing can be a fun trip for your kids, and it can also double up as a valuable learning experience. Talk them through the things you add in your cart. Show them the prices on the packets and the items you are buying.

    You can also hand them a chunk of money at the cashier's, and ask your child to pay for the items with that money. Then, you can teach them how they need to wait and collect the change from the cashier. This will help them understand how basic mathematics can help them in their everyday shopping.

  • Gift them a piggy bank

    A piggy bank is kind of like the first unofficial bank account your child will have. If you are wondering how to teach kids about saving money in a practical manner, piggy banks can be very useful. It gives them a tangible, real sense of saving money each time they add a few pennies or notes to the container.

    Another alternative is to use a clear jar to help them save money. This will also give them a visual of the money increasing as they save it, and reducing in quantity when they spend from the jar. Seeing this effect in real life can help them understand the concept of a bank balance more clearly.

  • Give your child a commission – not pocket money

    Many parents may give their children pocket money in order to help them understand the concept of finance at a young age. This is understandable, but it can often teach kids the wrong notion that you can get money without working for it. A better idea would be to give them commissions - or money in return for running errands or doing small chores around the house.

    For instance, you could give them a commission for taking out the trash, helping with your car wash or even organising a yard sale. Things like this will make them understand that adults make money from doing work. And it will help them get a better idea of how to earn and spend money.

  • Discuss the concept of opportunity costs

    As an adult, you know that if you use the money in your account for a major home repair this month, you may have to put off some other purchases for later. This is what opportunity cost is all about. It is the loss of one alternative when you choose another. Children often don't come across this concept till they are much older. But it is an important thing that should be taught to them sooner than later.

    So, as a parent, you can make them familiar with opportunity cost by explaining that if they use the money in their savings jar to buy a new pair of shoes this month, they may have to wait a while to save up more money and buy that book they want. This way, they will be able to prioritise and make decisions about what to buy with the money in their account. And prioritising is a skill that can prove to be very useful in money management as they grow older.

  • Give them rewards for saving

    Money management is not merely about saving. It is also about investing. The best way to help your children understand investing is to explain it as a reward for saving money in a disciplined manner. This will also give them more encouragement to keep up with the habit - in the same way guaranteed returns or inflation-beating returns encourage adults to remain invested.

    One way in which you can give them a reward for saving up is by matching a portion of their cost for any major purchase. For example, say your child wants to save Rs. 2,000 for a new pair of shoes. You can offer to match what they save in a 50-50 ratio. So, they save Rs. 1,000 and you add another Rs. 1,000 - thus meeting the target.

    Another way to offer rewards for saving is to pay them a small bonus each time they hit a milestone. So, each time they save up an extra Rs. 100, you can pay them Rs. 10. This mimics the way investment returns work in the real world.

  • Set an example

    Last, but not the least, is the fact that children learn more about life from what you do - and not what you say. So, leading by example is perhaps the best method of teaching your children about money matters. Prepare a budget for your family expenses, avoid impulsive buying, and steer clear of bad debts. As your children grow older, they will pick up more information about how to handle money by observing what you and your spouse do with your earnings.

    This could greatly affect the way they, in turn, handle their money once they start earning. So, talk to your children about the investments you make. Tell them about the insurance coverage you have in place. And explain the consequences of not having these crucial financial products in your portfolio. By seeing you setting an example, your children will learn more about money than from any other source.

Conclusion

While it is no doubt a good idea to introduce your kids to money as soon as they learn to count, don't worry too much if you haven't started broaching this subject with your kids yet. It is never too late to start. And, as they say, better late than never. So, even if your children are in their teens now, you can incorporate some of the ideas discussed above to help your kids get familiar with money and finance.

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