Money management is one of the most important skills you can have in life. Being responsible with your finances helps you avoid spending beyond your means and getting into debt. If you understand the value of money, you will be in a better position to negotiate when it comes to big financial decisions like buying a car, agreeing on a salary, or taking out a mortgage. You will be a savvy saver and have more money to live a comfortable lifestyle.
You want your children to enjoy a comfortable lifestyle too, without having to worry about their financial situation when they grow up. That’s why it’s so important to teach them about money while they are still young. Here are five ways to help them understand.
Give them a piggy bank
A piggy bank is the best way to teach young children about the value of money, as they can see their small amount of wealth accumulate. A clear jar is even better as they can actually see their money grow. For example, yesterday they had 5 cents, and today they gained a quarter so they have 30 cents in total. Talk it through with them and do the maths together. Talk about how when they have a certain amount of money they will be able to afford that toy they’ve been asking about.
Set a good example
Children learn the majority of their habits from their parents, so if you are responsible with your money you can pass this on to your little one. Refrain from making expensive impulse purchases when out shopping with them. If they see you slap down your credit card for that one-carat diamond that catches your eye then they will come to think that it’s OK to be liberal with your finances.
Teach them about opportunity cost
When your child starts accumulating their own money, they will want to spend it on the first thing that catches their attention. But teaching them about opportunity cost is one of the most valuable lessons they can learn. Make them understand that if they buy this video game, they won’t have enough left over to buy that pair of trainers they desperately want.
Make them work for it
Nothing in life comes for free and you don’t want your child to see you as an unlimited source of money. If you give your child pocket money then make them work for it. Tell them they have to do chores around the house like hoovering the carpet or mowing the lawn if they want to earn their keep.
Help them open a bank account
When your child is old enough, you should help them to open a bank account. This helps them step their money management skills up to the next level and gives them much more responsibility for their own finances. They will feel like an adult with their own debit card and PIN and as long as you’ve taught them the above lessons, you can trust them to look after their money.