Have you ever heard someone joke, ‘Where were my grandparents when so and so was getting wealth?’ Great money skills can make children avoid certain mistakes and as a result, improve their quality of life. This can set the coming generations off to a good start. Poor money skills, on the other hand, can mess someone’s children to even up to their second or third generation. It is therefore very important to teach our children about money and the importance of budgeting.
Here are some of the ways we can teach children how to budget:
Preach and Drink Water
Children learn more by observing rather than what they are taught verbally. If you are poor with money, you will not be able to teach your children well. Luckily, it is never too late to learn. Children will always follow our lead that is why it is important for parents to understand, at the very least, the basics of budgeting and then impact this knowledge to their children.
Include them in Financial Decision Making
So many times, we send mixed signals to our children without knowing. A good example is when you are shopping with your children and they ask for a toy, but you insist you have no money but then proceed to buy them shoes. While for any adult, shoes will take priority over toys, children do not see it that way. That is why it is important to include them in decision making from an early age.
Of course, you will not include them in all decision making. It is up to the discretion of the parents to decide which decisions the children will be involved in based on various factors including the age of the children. Involving children will not only make them feel nice, but it will help in them seeing certain things as priorities over others.
Whether you give your children allowances or peg the same on house chores is entirely up to you. There are pros and cons of both sides. The most important thing is that the children get some little money with which they can practice how to budget. The amount should be just enough for them to buy small things as well as save for larger things to buy in the future.
It is also up to the parents to decide how much they give. This will obviously depend on how financially stable the family is, the age of the children etc. One simple way of deciding how much allowance you can allocate is to pay a fixed amount for every year they are old per week/month e.g. if the fixed amount is 100, and the kid is 10 years old, then you will give them an allowance of Kshs. 1,000 (100 multiplied by 10). When the child gets to 11 years old, he will earn an allowance of Kshs. 1,100 and so on and so forth.
Make it Fun
Children learn better when something is fun. Financial matters do not have to be theoretical and boring. You could make it fun by getting money games such as monopoly. Look out for books on finances such as ‘Rich Dad Poor Dad’ etc.
Simplify for young children
Very young children may not understand the whole budgeting and financial decision making processes. This does not mean you cannot start teaching them. One way of doing it is to have separate jars to signify different uses of money. Once the children are given money, they will then allocate the money to the different jars. The jars could be as follows: One for spending, another for savings, another for investment and another for charity/ tithe/ alms.
In the spending jar, they will put money they intend to spend e.g. in buying sweets and so on and so forth until they get the next allowance. The savings jar will have money for short-term saving e.g. buying a toy they cannot afford with a week’s/ month’s allowance. The investment jar will have money put in for long-term use e.g. buying a bicycle. This is not an investment but that will be explained when the children are a bit older. The final jar will depend on one’s religious affiliations.
You could supervise how the allocations are done, but it is wise if the children make the call themselves on how much should go into which jar. Whichever way they decide, they will learn a valuable lesson. If they put a lot of money in the ‘spending jar’, then they will take more time to buy toys and vice versa. All in all, the children at this age should learn the importance of prioritizing, keeping track of their money as well as the importance of saving money for future use.
Build on Basics as Children grow older
When children get to pre-teen ages, they can be taught more about budgeting. This is the age you can include them in making the family budget and various financial decisions regarding the family, up to a certain point of course. Some of the lessons you can teach them include:
The aspect of credit and how interest on credit can erode the value of money. Teach them that when borrowing money, one has to pay back with interest. You can teach them the differences between debit and credit cards and the advantages of a debit card.
At this age, you can teach them the basics of investments and why a bicycle is not an investment. They should understand the way interest can erode one’s money on credit is the same way the interest will multiply their money from investments.
Do Not Bail Them Out
If the children spend their money badly, resist the urge to bail them out. For example if they use all their savings on impulse buying and need money to do something else, do not come to their aid. Unless it is something they cannot do without. That way, you will teach them a good lesson of sticking to their budget and they will be careful how they spend money next time.
Find some great tips from Huffington post in these articles on how to teach children to take care of their money. Also check out Money Smart’s article on teaching kids about money.