It’s said that most children have learned the financial habits they’ll use as an adult by the time they are seven. This means it’s never too early to teach your youngsters good money habits that will help them later in life.
While experience has taught me it’s always possible to learn good financial habits later in life, teaching your children to become savvy around money will stand them in good stead when they’re adults.
Helping them understand money and its value could mean they’re less likely to be influenced by others and make decisions they later regret. Read on to discover 10 important lessons you can teach your children, and how they could help your offspring make better decisions when they get older.
1. Don’t spend whatever money you have
Give them a piggy bank and encourage them to save their money for the things they want – and don’t always buy what they want for them. Encourage them to save for something that’s expensive to them, but not impossible for them to afford, as this will teach them the value of saving up for something they want.
2. You need to earn to spend
Help them understand that money is earned. You can do this by encouraging them to do jobs around the home for their pocket money. This will help teach them to have a work ethic and appreciate the value of money. This can be followed up by encouraging them to have a Saturday, weekend, or part-time job when they are old enough.
3. Budgeting is essential
Encourage them to budget with their pocket money. One way you could do this is to encourage them to commit to buying something regularly out of their pocket money, such as a magazine. They can then use money left over for other things they may want to buy. This will teach your child the concept of budgeting for a commitment and saving what’s left for other things they want.
4. Don’t compare yourself to others
Teach your children not to bow to peer pressure and “must haves”. Help them understand that fashions and fads tend to be expensive, which can mean they’re poor value for money. This can help ensure they make their own financial decisions later in life instead of being negatively influenced by others.
5. The difference between want and need
This dovetails into point three, as most children want the latest toy or game. When you are shopping, discuss with them the things that are needed versus the “nice to haves”, and why they should only have the latter once they have bought what they need. This will help teach financial responsibility for later in life, ensuring they don’t spend their rent on a night out!
6. Compound interest and growth
Teach your children about compound interest and compound growth. This can help them understand why investing over long periods can grow wealth, while interest on debt can mushroom and cost them dear. One way to do this is to give them interest on the pocket money they save in their piggy bank and sit down with them on a regular basis to calculate the growth.
7. How to handle a bank account
When they are a bit older, open a bank account for your child so that they get used to the concept of running one. Teach them to regularly check the balance, and what money has come in and how much has left the account. That means they’ll get into the habit of knowing exactly what their financial situation is at any given time when they are adults, enabling them to make better decisions in a timely manner.
8. Virtual money is still money
As our recent blog, 7 nations leading the way to a cashless society are in Europe. Do you live in one? outlines, many countries across the world seem to be moving towards a cashless society. This means it’s important to teach your children that payment apps and online accounts still requires money in the first place. One way to help them understand this could be to let your children buy things when they have their own bank account, so they can see the balance reduce and then go up again as they deposit money into it later.
9. Getting professional help is wise
If you use a financial planner, let your children see you talking to them so that they understand the real value of speaking with a professional later in life. Consider also discussing your investments with your children and some of the suggestions your financial planner makes, so the idea of investing loses its mystery.
10. Consider what you do with lump-sum gifts
Talk to your children at times they are likely to have a cash gift, such as birthdays and Christmas. Discuss what they could do with the money and whether saving it is a better option than spending. This may help them deal with a lump sum later in life, such as redundancy or inheritance, in a more responsible way.
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This article is for information only. Please do not act based on anything you might read in this article.