Children seem to develop a fascination with money early on. Think back to when you reprimanded your baby for putting coins into her mouth and how you had to tell your toddler repeatedly that money is not a toy. Unfortunately shortly after that you enter the phase where your child becomes the ultimate consumer – wanting everything without understanding the value of money. Most toddlers see parents paying with credit cards, thinking that it is a magical card that can pay for anything and that there is no limit to the amount of things that can be purchased.
Children need to learn about money from an early age. Owning money gives a person a decision-making ability. The way children learn to spend money and how they perceive their parents’ spending abilities will influence their own future financial decisions.
I found that there are five core concepts that a child should learn with regards to money:
1. Earning: Earning money gives your child the freedom to purchase that desired toy. They feel recognized for their efforts and their self-esteem gets a boost. They learn that if their work is not up to scratch and they do not perform it regularly they will not be compensated. They realize that they have a choice in how they would like to earn money. They learn to evaluate the time, skills and energy that certain jobs require and if they are up to it.
2. Spending: Children learn that they have to decide whether to spend money on the items they need or just really want. Children realize that there is a limited amount of money that can be spent. They have to start comparing items and make decisions. Children learn to take responsibility for their spending behavior. A very important thing to teach your child is to keep accurate records of their purchases.
3. Borrowing: Grown-ups often fall into a debt trap through borrowing more than they can realistically pay back on a monthly basis. as Jubilee Finance reports, the debt rate has grown from 60% to 83% in just three decades. It is important that your child learns early on about the cost of borrowing. All that is borrowed have to be paid back, often with interest. Children need to learn when borrowing is appropriate and deal with the consequences.
4. Sharing : Sharing gives your child the opportunity to experience the good feeling of giving and see the response of the receiver. It is good to instill an attitude of helping others even if you do not receive recognition.
5. Saving: Probably the most important and difficult concept for young ones to understand. Saving enables children to get what they need or desire at a future dated time, when they do not currently have enough money available to purchase it. In other words it teaches children how to deal with delayed gratification. Children should also learn the difference between planned savings (to buy that certain toy) and regular saving (for a rainy day).
The abilities children need in order to have an understanding of money is basic mathematical knowledge and the ability to see things from someone else’s point of view.
Some helpful tips:
- Introduce your child to the concept of money as soon as they can count.
- It is important that children attach value to money – a never-ending supply of money is a myth.
- A child needs to be able to differentiate between needs, wants and wishes.
- Teach children the value of saving versus immediate spending.
- Parents have to teach their children to set realistic goals for themselves.
- Pocket money should be given in denominations that encourage saving. If he receives $5 per week, give 5 $1 bills.
- If possible take your child to a bank to open a banking account. Another option is to have your own KIDS BANK. The parent keeps a written record of all withdrawals and deposits.
- Also encourage your child to keep his own record of his savings, spending, donations and investments.
- Use shopping trips as opportunities to teach children the value of money. Compare similar items according to pricing and value.
- Allow your child to make his own spending decisions. Sometimes wrong decisions teach important lessons.
- Teach your child how to look at advertisements and how to evaluate their worth.
- It is very important that children learn from early on the dangers of borrowing money.
- Many children do not understand the abstract concept of a credit card. Teach them how a credit card should be used responsibly.
- Most important of all is to teach your child by setting an example.