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04 April 2019
As earning adults, we all know that money does not come easy. While every family deals with finances differently, most people agree that one of the biggest lesson parents can impart to their children is the value of money and how to manage it.
The way children view money will often carry through into adulthood. By providing your children with basic financial knowledge and first-hand experience in earning, saving, and spending money, they are more likely to develop a savvy sensibility on how to manage their personal finances as adults.
Simply telling your children that “money does not grow on trees” is not enough. Here are 5 basic and valuable lessons to teach your children about money.
You can teach your children about the value of working by rewarding them whenever they do extra household chores or help someone else. For instance, they can help water the garden, assist a relative in cleaning out the house, help paint the walls of their room, or pick up groceries for their grandparents or old neighbours. Your child can collect the money in a piggy bank or jar. Also, encourage them on a weekly or monthly basis, to track and keep count of their earnings.
Each time your child decides to buy something they want, have them subtract the amount from the total of the money they have earned and collected. This will teach them that money is a finite resource along with some simple mathematics. Take your child grocery shopping and explain to them how you put aside certain amounts of money for food and other household items. This way, they will learn how to plan and spend wisely.
Probably one of the most important lessons that will help your children when they become adults, is saving. If your child really wants the latest toy or gadget, have them set aside money weekly or monthly in a separate jar.. Have a countdown each time the child comes closer to the goal.
If your child needs to borrow money for a special treat or are short on their goal, give conditions to borrowing, like they have to return the amount borrowed within a set date. To make them understand about the consequences of borrowing and not paying back on time, implement a penalty fine say for example, 10 sen, for each day late.
As more and more young people are interested in entrepreneurship and building their own start-ups, you can teach them from young how to make their earned money work for them. Ask your child what interests them most and let them invest in it accordingly, like simply setting up a lemonade stand or an arts and craft stall. This will also teach them valuable lessons in management.
Apart from teaching your children the above mentioned basic financial concepts, here are some more learnings to help give your child a deeper understanding of the value of money.
NEEDS AND WANTS
While it may be hard to explain, it is important that children realise the difference between needs and wants. One way to explain is that needs are the things that we must have in order to survive like food, water, clothing, shelter and medical care; wants, on the other hand, are things that we would like to have but are not necessary for our survival. For instance, basic clothing is a need, whereas designer wear is more of a want.
However, both needs and wants cost money and children have to understand the importance of focusing their spending on needs rather than wants.
It’s also important to help your children understand that no matter how wealthy you are, you cannot have everything you want due to the limited nature of money and that every purchase has an opportunity cost – the benefit lost when choosing one alternative over another.
It can be explained as a trade-off where money used to purchase one item will not be available to purchase other items. An easy way to teach this lesson is to involve children in making simple everyday choices like choosing the flavour of ice-cream because they cannot have both strawberry and chocolate or deciding between two toys to pick only one.
Giving is just as important as earning and saving. To help your children understand the importance of giving, involve them in ways where they can see they are making a difference to the community and the world, like helping at an orphanage, an animal shelter or an environmental cause. Help your child find a cause they are interested in so they can set aside a certain amount of their allowance to donate.
TIME HELPS MONEY GROW
Money rarely grows overnight. Like a planted seed, it needs to be nurtured carefully so that it grows gradually over time. With compounding interest, money saved or invested over a long period of time has the potential to grow significantly. Encourage your child to open a savings account, which will enable them to earn interest on their savings.
It is never too late to teach your children the value of money. While money is crucial in life, your children also need to realise that it is not everything. Do not be too hard on your children with money – avoid overindulging them but do buy them their favourite toy or treat once in a while. It is also okay if they make mistakes as it is all part of the learning process. The idea is to raise a child to become a financially responsible adult.
The above articles are intended for informational purposes only. AIA accepts no responsibility for loss which may arise from reliance on information contained in the articles.