Money matters are tough to understand, even more so for young children. However, it is our job as parents and heads of our households to equip our children with what they need to be successful in navigating money as an adult. We must have serious conversations about the constants in life, such as money, and set our children up for strong financial futures.
How do we communicate with kids?
A conversation around money is going to be different depending on the age of your child. We need to put things into terms that children can actually understand, and engage them only on topics that they are really interested in. Establishing communication and trust will clear the way for topics early.
For instance, we could use simple depictions to explain what a credit score is. As they say, a credit score is like one’s financial resume. Try framing it into a conversation:
A: Can you give me some money for this car? I promise I’ll pay you back
Other people telling you: Don’t listen. He’s lying. He hasn’t repaid me for a pack of sweets last week.
A simple depiction like this could be implanted in a kid’s brain for a lifetime. We don’t have to make it rocket science – essentially if I give you 50 bucks, how likely are you to pay it back? A higher credit score means you’re more likely to pay me back. A lower credit score means, “I got a few more questions that I need to check in on!”
Experts recommend talking about money before your kids reach Primary 1, when they receive an allowance for school. If you are giving your child a credit card for university, put a small limit on it so that they understand the importance of good credit. How a person feels about money stems from what he or she is exposed to as a kid. For young children, parents should teach the important financial concept of distinguishing between needs and wants, by guiding them through daily purchasing decisions. For instance, chocolate is a want, but fruit is a need.
How much to save, how much to spend?
For older children, consider using these guidelines: save 40%, spend 40%, give 20%. Giving could mean supporting a charity or buying something for someone. Sharing doesn’t mean just toys – we should extend this principle to money too. This teaches generosity and helps the child to be more considerate of others.
Track daily expenses
For primary and secondary school kids with allowances, we can help them see where their money is going by getting them to keep an allowance book that documents their daily expenses. After a while, you can show them the patterns you observe, and help them assess if there is any unhealthy spending or eating habits that they should cut out.
Teach investing fundamentals
You will want your child’s hard work early in life to work hard for him for the rest of his life, meaning he needs to have his money working for him. Hence, you need to get him or her to invest. Try opening a small investment account to monitor together, so that your child has the opportunity to watch his or her money grow.
For instance, when your child wants to give to charity by donating to Flag Day, you could give him or her some of your spare change. However, remember to take the same number of coins from your child’s piggy bank when you guys get home. This helps your kid to understand concepts such as “Nothing is free”, and that money can be used to benefit others.
Parents can also begin teaching preschoolers about concepts such as earning, spending, and saving, by taking them to the market to learn all about trade and the exchange of money. Teaching about finances is also a great way to impart family values. For instance, when your child holds a birthday, you can set aside a sum of money from your birthday hongbao to offset part of the catering buffet cost. This teaches your child to “return the love” of family and friends by giving them a treat.
Have a conversation around your own budget
You are the best role model in exemplifying good financial habits for your children. Let them see you doing the bills every month. Teach them how you portion out your income for bills and savings. When you shop together, try to think out loud. You could say something like: “I really like this piece of clothing but it’s out of my budget at the moment. I can come back next month and if it’s on sale, I will buy it. If it’s not, then that’s okay.”
These are little but significant lifestyle habits that can teach children to think wisely about money.
Teaching children about money is tough, but make it easier on yourself by following these tips. If you need more advice, drop us an email at firstname.lastname@example.org and we will be more than happy to chat!