Everyone learns to manage money eventually. Some of us weren’t given the opportunity to learn this at a young age. Because of this we have either, never been able to manage money successfully or we had to learn it the hard way. If you don’t take the opportunity to educate your child how to manage money, somebody else will. Here are some effective approaches that will help financial education for children and promote active habits that will last a lifetime.
1. Start by giving them something to put their money in.
Developing children are visual learners. A large clear jar is far more effective than a piggy bank as they can see the amount of money grow or shrink depending on how they manage it.
2. Lead by example.
If your child has a money jar, you will have one too. Instead of using your credit card all the time, illustrate to your child the importance of cash. Try to avoid arguing about money in front of them. Remember that your children take notice of everything.
3. Demonstrate to them that things cost money.
If your child demands something, explain to them how much it costs, help them count the money from their jar and take the money to the store to buy what they want themselves.
4. Pay your child a commission, not an allowance.
Most people don’t get paid for just breathing, teach your child that money can, and needs to be earned from a young age.
5. Don’t make impulse purchases in front of them.
Children are impulsive and are delighted to spend money that they place no value upon. If you give into these impulses yourself, it teaches your child that this is an acceptable way to spend money. Encouraging them to wait a week, or if they want to earn the item, ask them to do a chore first.
6. Transfer from the Jar to the bank account.
As your child gets older, setting up a bank account marks an essential step. This allows you to take money management to the next level.
7. Set savings goals.
Once they get used to having one bank account, it is time to set up a second savings account. Even if you are too young to have a part time job and are still being paid for doing household chores. These payments should be split between the two accounts, a 60:40 split is an excellent starting point.
8. Encourage them to get a part-time job.
Currently there are many ways that teenagers can make money. Either offline or online. At this stage of their financial development, don’t be surprised if your child discovers ways to earn money. Actively encourage this, if it doesn’t interfere with other aspects of their development.
9. Introduce them to compound interest.
The sooner your child learns how to make money work for them, instead of them having to work for it, the better. Start making small investments together and discuss how compound interest works. The earlier they learn this the better prepared they will be for their future.
10. Teach them to respect credit cards.
As soon as your teenager turns 18, they are going to be harassed by credit card companies. If you have done your job correctly, your child will already have a healthy respect for money and understand interest rates. They should find avoiding this temptation easier to avoid.
For more information, contact us on 07 4779 0555 to discuss with a Best Wealth Creation Adviser.