Teaching children saving money, prepares them for the huge responsibility when they start handling their own finances. Lack of financial knowledge is a problem both in the developed and developing world.
Parents usually talk to their children the dangers of early sex, unplanned pregnancies, alcohol and drugs. There are various preteen, teenage and youth groups, communities, that sensitize the children about the dangers of the above.
However, there are fewer communities/groups that teach children about saving and money management. In school, reading, writing and structure are fundamental aspects, personal finance and saving money is usually neglected.
Many children find out about the importance of saving money on their own, usually in college/university, many of them after they have taken up student loans and credit card debt with high interest rates.
Parents should be proactive in teaching children saving money since many aspects of our lives like jobs, health, savings, investments, mortgage/rent revolve around money, its management and the decisions made can affect lives. Financial knowledge helps us make informed money decisions in our day to day lives.
Parents are the biggest role models to children, teaching children the basic things like how to budget, save and how to invest, can make a good foundation about their finance habits.
In today’s world where online banking and shopping, credit cards are the norm, it makes it harder for the children to understand the price of things. It makes it harder for them to understand that it is actual money coming in and out of the family’s bank accounts.
WAYS TO TEACH CHILDREN TO SAVE:
Money from the ATM
Explain to children while at the ATM that the money in your bank account, is money you earned through hard work and maybe saving.
There will be less remaining money, every time money is taken from that account. This way children understand ATM is not just a whole where they can to get money.
Saving in a glass jar
Children should be trained to save before making a big toys and gadgets. This helps them avoid impulse purchases they would otherwise regret when the novelty wears off. Tape a picture of the desired toy/gadget on the jar as a visual reminder of the goal.
Saving should not go on for many months, this can make them lose interest in saving all together.
Make shopping pre planning together, comparing the prices of different things and look for great deals. Involve their children in making the family budget.
It gives them a picture about how much money the family spends every week, this in turn gives them an insight about the costs of family life.
Children can earn pocket money after they have completed their chores. Pocket money can be withheld when chores are not completed as agreed. This will enforce a good work ethic that you only earn when the job is completed as agreed.
70,10, 10 & 10 Rule
I learnt this rule from Jim Rohn; For every dollar earned, children should to learn to spend 70 cents; put 10 cents in a savings account, another 10 in an investment account, and the 10 donate to charity/church.
They will eventually learn that the act of benefits both the person who is being given and the giver.
Teaching the children, the dangers of credit cards.
There are literally tempting credit card offers everywhere. Teaching teenagers that credit cards and in general is a bad idea because of high interest rates, additional fees & low minimum payments.
Having credit cards can result in purchasing expensive stuff. Failure to make payments on time results in more interest, and damages credit score. It is a vicious cycle.
Teaching older children about credit reports.
For older children, show them how credit reports work, what is included in credit reports and the impact of that information on credit scores.
Show the children your personal credit report, this helps them understand how good or bad past financial decisions can impact credit reports.
Teach children how to make money.
Children from the ages of 14 can find a small job. From shoveling snow, mowing lawns, washing cars, selling cookies in the neighborhood, to selling old stuff around the house.
This gives them the responsibility of managing their money, preparing them for larger amounts of money later in life.
Parents must walk the talk; many children follow in their parents’ footsteps. Be honest about your earlier bad financial decisions, the impact it had on your life. children will appreciate the honesty and learn not to overspend. See my earlier post about handling finances here.