Russell Ward Finance Writer
It’s never too early to put in place the foundations for smart money management, particularly when your kids get to an age where they start getting an allowance from you. If you’re wondering where to begin, teach them these important money lessons and set them on the road to a more secure financial future.
Money must be earned
It’s important to show kids early on that money isn’t given freely – it must be earned. And that by working hard, you’ll be rewarded for your efforts. One way to put this into practice is to give your children an allowance for completing a few simple chores around the home. In this way, they not only see how a home works but they also start to understand that money is given in exchange for a service, however large or small.
There is a difference between want and need
Children will make constant demands for the latest toy or gadget because they don’t know the difference between something that gives instant gratification and something that is a necessity, such as food. You can help develop their learning by saying “no” to those demands, while bringing them to the supermarket to help them understand the cost of necessities. They could then use their allowance for toy purchases, which will show them that once the money is gone, it’s gone, and that it’s therefore important to spend wisely.
It’s important to budget
Creating a budget for your kids can be a fun way to show them how to spend carefully but also allows them to see where their money goes. While they won’t have much of an income at this stage in their lives, it can be a valuable exercise in teaching them to put aside money for future goals. You can also show them your own household budget and how the money earned is distributed to a variety of expenses and savings.
Saving is key – and it is fun too
Labelling a jar for savings can show your kids how to allocate their allowance for future needs. It encourages delayed gratification – an important financial lesson in itself – and teaches them the importance of putting money to one side for spending later, whether it’s saving for a particular goal or simply reserving some funds for an unexpected expense. To encourage them to save, consider matching the money they put into their savings account.
Teach them about credit and what it means
Credit is a tricky concept to explain to kids but they’ve probably seen you use credit cards at the shops or they might hear you talk about the home loan.
Once your kids are a bit older, try sitting down with them and explaining what credit means. You could run through the principles of earning money, borrowing it and then paying it back. Tell them about the different types of debt – both good and bad – and the kinds of things they should look out for as they navigate the world of credit and lending.
About the author
Russell Ward is a professional business writer who has been published in The Huffington Post, The Telegraph, CEO Magazine, Global Living, Mamamia and Thought Catalog.
Please note that this article is not financial product advice and does not take into account any person’s individual objectives, financial circumstances or needs.