To enable your kid to ace their finances in adulthood, it is crucial to start early and instill smart financial habits that will serve them well throughout their lives. Raising financially-savvy kids starts at a young age, and continues as they grow up.
Here are some practical tips to sound financial education:
1. Explain that money does not grow on trees
Make sure that your kids understand that the money your family spends and saves comes from working. As kids get older, they often get pocket money and become more thoughtful about and aware of money. Take an active role in advising them on how to save, use reward programs and discounts, and shop wisely. It is important to guide them and offer sound advice, but still allow them to make their own decisions.
2. Demonstrate the boundaries of budgets
One of the biggest gifts you can bestow on your kids is teaching them to budget. Research suggests that kids from as young as 3 years old can grasp concepts such as spending and saving. Start with the basics to teach kids about budgets – let them experience it first-hand. Take some of their savings’ money and let them pay for their purchase. This teaches them to only spend what they have, the fundamentals of budgeting, and they will learn the consequences of overspending if they do not manage their budget properly. (It is crucial that your rubber arm does not partake in this practical learning session).
3. Encourage a wish list
It is hard for kids to differentiate between wants and needs. Help them set their priorities by creating a wish list of things they want to do with their money. Now rank these in order of importance and help them put together a workable plan on how they will achieve this list (cold cash for extra chores goes a long way).
4. Teach about delayed gratification
We live in a world where instant gratification is king, this makes it difficult to teach kids the patience to wait for something that they want.
In 1990 the psychologist Walter Michel’s and his team released a study, today famously known as the Marshmallow test. Kids were offered a single marshmallow, and if they managed to not eat it for twenty minutes, they will be given another.
Watch this short video to see their research in action – I guarantee you it is worth every second!
https://www.youtube.com/watch?v=QX_oy9614HQ
The results showed that kids who could practice self-control are more likely to be successful later in life. Make it your mission to teach your children this crucial skill.
5. Use the power of play
Play ‘shop’ and price a variety of sweets and goodies your kids find appealing. Give them tokens or coins, to purchase the items they want the most.
For older kids The Money Game is a must.
6. Trust in the good old piggy bank
A good way to encourage savings, is a piggy bank. If you are clever about it, you can add R1 for every R100 saved, a good way to plant the seed for earning interest, and when they grasp the concept well, compound interest (compound interest is, simply put, the ability to earn interest on top of interest).
7. Lead by example
Create a budget before you go shopping. Outline what you are going to buy and what your price range is for each item. Watching you plan your shopping trips will teach your kid to plan for, and stick to, their budget!
Tell them about an item you are saving towards, and allow your inner kid to shine through, do a happy dance and show your kids firsthand that some things are worth waiting for!
