Do you still remember the lessons that your parents used to teach you as you were growing up? Surely one of them was about how you should handle your pocket money. As a parent, you should teach your children to manage their finances at a young age so that these lessons gradually turn into good habits as they become older. Here are 5 financial management lessons that you should teach your children:
Saving Their Pocket Money
The first thing to teach your children is to save the allowance that you give them instead of using it up immediately. Explain to them that by saving a small amount daily, the money will slowly accumulate to become a large figure which can be used for future purchases.
One way to encourage your children to set aside some of their allowance is by asking them to save for something they want to buy – a new toy, their favourite video game, etc. Help them to calculate how much they need to save daily for them to reach that short-term goal.
By having a financial goal to aim for, your child will be more motivated to save their pocket money. Once they have developed saving money as a habit, you can proceed to save money for long-term purposes.
Open a Savings Account
Speaking of long-term savings, start a bank account for your child. Most banks offer junior accounts that you can open for your kids without much difficulty. Then, make it a point to bank in about 3/4 of your child’s monthly savings into the account. Money received during special occasions like festivals and birthdays can also be deposited into the account.
Try not to withdraw any money if possible, unless it is absolutely necessary. Over time, the money plus the interest will gradually accumulate and grow to a rather significant amount which he or she can use when they are ready.
Need to Work to Earn
Your children should also learn that money doesn’t come easy and that they should work for it. A simple way to do this is by having them to do simple household chores like sweeping the floor or taking out the trash in exchange for money. This way, not only will they be able to earn a few extra bucks, the value of hard work will be ingrained in them as well. You can also add their earnings to a transparent jar or container so that they can see for themselves how their finances multiply over time.
As they grow up, kids should also learn that sometimes you are unable to afford every single thing you desire and that sacrifices have to be made. An activity that you can try out with your children is this:
Take them to the store, give them RM5, and ask them to choose three RM2 items that they will like to buy. Then, ask them to only pick two because there will not be enough to buy all three. This activity will teach them that there will be times when we will need to make financial decisions based on the money we have.
No Such Thing as Good Debt
To really drive home the importance of managing their money wisely, you can try this seemingly harsh but value-filled lesson. Ask your child what he or she wants to purchase; make sure that it is something beyond what they can afford at the time. Offer to buy the item for them, but let them know that they would have to pay back what they owe you. This can mean that either they would not be given their allowance or that they need to give you the earnings they get from the simple tasks they do around the house.
Note everything down so that they can track the duration for the debt to be paid in full. From this activity, your child will know how troublesome being in debt can be. It is not advisable to return the money back to them as they might mistake that they will eventually get their money back, even in real-life scenarios. Instead, bank in the money into their account without them knowing.
By understanding the basics of money management, your children will be more mindful about their spending as they grow up. These positive lessons will only benefit them and help them to make smart decisions in the future.
This article was written by Lord Tan from CompareHero.my, a site dedicated to increasing financial literacy and helping you save time and money by comparing credit cards, personal loans, and broadband plans in Malaysia.