Helping Kids Understand the Value of Money
Did you know that 32% of Canadians are nearing retirement age without any savings?
Unfortunately, many people lack basic money skills. Saving money takes discipline and planning. One of the reasons why many Canadians find it so hard to save is they never learned how to manage money early on.
Do you want to give your child an early advantage in life around money? It’s never too soon (or too late) to start teaching them the value of money.
Money management is perhaps one of the most critical skills you can pass on to your children. By teaching them how to handle and work with money from a young age, you’ll be setting them up for financial success in every stage of their life.
Keep reading to find out how to give your child the skills to manage money like a pro.
Don’t Leave it Too Late
The first piece of advice around teaching your children the value of money and how to manage it is to start early.
As a parent, it’s easy to think that young children don’t need to deal with or think about money. Although young children don’t need to work with money, showing them how to, even at a very early age can be an important starting point.
So when’s the best age to start teaching them about money? By the age of 7, most children are capable of understanding the value of money. But, you can start teaching them about it even earlier.
At 3 or 4 years old, children won’t be able to grasp complicated concepts, but they can still understand that money is used in exchange for goods and services. Playing shop is an example of how little children easily catch onto the concept of money.
What if your child is older, and you haven’t been actively teaching them about the value of money? Don’t panic. Kids are quick learners, and any gaps in their view of money can fill in quickly.
If your child is already a teen or tween, you can still instill good money management habits in them.
Discussing the Value of Money
One of the most important steps in teaching your children money management skills is to discuss the value of money.
One of the first ways you can do this is by talking about the time value of money. Most people have to give up time in order to earn money.
Explain how different jobs attract different levels of pay. You can also give a real-life example of the time value of money by estimating roughly how much time you have to work for a carton of milk, a meal out, a holiday, etc.
You can even open the conversation around the present value of money versus its future value. Thanks to inflation, money devalues over time, which is why it’s important to put it into savings options that will retain value.
This will help your children understand that the value of money over time can change and that what might look like a large amount of savings could be worth much less by the time they retire one day. If you want to demonstrate this, you can use an interactive value of money calculator to show what $10 will likely be worth in 10 years.
Gamify Saving and Money Management
One of the ways you can build good money management habits in your children is by getting them into the habit of conserving money. This might not sound like the most fun activity, but you can make it a whole lot of fun through the right approach.
For instance, you can challenge your kids to take part in a “no spend” day. You can make a competition out of who can come up with the most delicious meal with only the items you already have in the pantry.
You can also compete with each other to identify areas where you could save as a family. This can get kids on board with things like not wasting electricity, something you might usually have to nag them about.
Once their minds get working on areas to save money, you may be surprised at what kids come up with.
The best thing about these types of challenges is they gamify saving. This creates positive associations that can last into adulthood, motivating them to build lifelong, good habits around money.
If your children are small, you can also gamify the experience of money through playing “shop” with them. There are also a variety of board games you can play that contain financial learning points, as well as online games and quizzes.
Get Them Involved In Grocery Shopping
Another way to get your kids into the habit of conserving and spending money wisely is to get them involved in grocery shopping. Share your budget with them and explain why you need to stick to it. Then, make it a challenge to see who can spot the most deals and savings while at the grocery store.
You can also teach them about marketing and pricing techniques, such as the cents and dollars strategy most shops use. Instead of listing something as $40, it might be listed as $39.99. This is only 1 cent away from $40 but our brains trick us into thinking it’s closer to $30.
Don’t Forget About the Power of Pocket Money
Another great way you can teach children about the value of money is through pocket money. Managing their own pocket money puts them in the driver’s seat and allows them to put the things you’ve taught them into practice.
There are a few different ways you can approach pocket money. Some parents give pocket money regardless. Others tie pocket money to chores.
Giving pocket money in exchange for chores can be a powerful way to instill in your kids that money doesn’t come out of thin air; you have to earn it. If you want to provide extra motivation, you can also take advantage of online piggy bank apps that allow you to “list” available chores around the house that you’d like done, with a price tag.
Once the chore is completed, you can award the pocket money through the app. This mimics the online freelance job markets and can motivate kids to take on additional chores to earn extra pocket money.
The online format also adds a gamification element. You might find your child eagerly checking the app for extra chores instead of groaning when you suggest they take out the trash.
If you want to keep things offline, you can create your own physical version of a job board by posting chores with price tags on post-it notes on the refrigerator.
Another way you can teach your child the value of money and how to manage it through an allowance is by giving them enough to pay for certain necessary expenses.
Instead of making pocket money just for fun-related spending, work out how much they’d need to also pay for things like bus fares and stationery supplies. Explain to them that you’re putting them in charge of these expenses and help them to plan for them.
This teaches kids that basic expenses have to come first before recreational spending and can also get them motivated to stick to a budget for things like back-to-school shopping.
If you give your kids an allowance, there might be times when they come to and ask if they can borrow money against their next allowance “installment.”
Some parents tend to say no to these requests but they can be an important learning opportunity. Instead of rejecting the idea point blank, consider extending a loan to them, but with interest.
This will teach them the fundamentals of lending and credit and how to evaluate whether the interest cost of borrowing money is worth the extra cash flow.
You might be thinking, “I don’t want to get my kid into the habit of borrowing money.” Excess borrowing isn’t a good habit for anyone, but leveraging credit when you really need it can be important as an adult.
Credit can be a pivotal way to reach certain milestones, such as owning a home. It can also be a lifeline in emergencies. Credit can even save you money in certain situations.
For instance, if an unexpected expense arises that you can’t cover from the funds in your checking account, it might be more cost-effective to take a small loan than to pull money out of a fixed-term savings acccount.
In short, knowing how to manage credit is a valuable skill.
Introduce Them to Stocks
You can also teach your kids the value of money by introducing them to buying stocks. Teaching them the basic concept of stocks is a great way to demonstrate how they can make the future value of their money more by investing it in the right assets.
Stocks might sound like a very boring thing to show a kid—but consider this. What if you told them they could buy stocks in some of their favorite companies, such as Mcdonald’s, Disney, Lego, etc?
They can also buy stocks in places you shop at, like large chain stores. This can make the concept exciting for kids and give them a sense of ownership over their stock picks.
Showing Your Kids the Value of Money Can Be Fun
Teaching your kids the value of money and how to manage it might seem like a daunting task, but it can be a lot of fun once you get into it. By implementing these tips, you can get them saving, excited to take on new chores, helping you find ways to save, learning how credit works, and even investing in stocks they like.
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