We’re a nation of consumers. Whilst nobody is saying that’s a bad thing (it keeps the economy going) it doesn’t do much for your bank balance. Sir Richard Branson, a British entrepreneur, said the first lesson he learned from his mother was to save your money. And its unlikely Bill Gates and Steve Jobs were spending all their time drinking wine and buying silk shirts.
If you don’t teach your children how to manage money from a young age, they’ll be riddled with debt and spending their pay checks as soon as they come through the door. It’s really no way to live. Here are my top tips for parents to teach their children money management.
1. The Value of Saving
The most important lesson isn’t to get a higher salary. It’s to save every cent you have. You must make your child respect the value of a dollar. Teach them how to form a safety net should they ever need some emergency money. Keep drilling it into them as they grow up, and make sure you save money to show you aren’t just saying it for the sake of it.
You might even want to set up a savings account for your child.
2. Money Matters Now
Some parents feel apprehensive about introducing their offspring to money at a very young age. Whilst they often don’t understand the concept of a piece of paper buying something, you can introduce a substitute.
Instead of introducing them to currency, show them trading. Trading is another form of commerce and displays the same principles as money. For example, you might show them how they can trade two baseball cards for one high-value baseball card.
3. Be Honest
It’s hard to admit how you can’t afford something. After all, you don’t want to make it seem like you’re a failure because you can’t buy them the latest video game. Instead, give real reasons as to why you can’t or won’t get them something.
Explain to them how they already have one or how they haven’t earned it. Encouraging them to do chores in exchange for a gift ingrains the discipline associated with work. It also increases the value of what they do get.
Sometimes, it’s best to just tell them. Say how you don’t have enough money for something.
4. Math over Money
The math of money can confuse a small child. They know their numbers and understand how two is larger than one. What they might struggle to grasp is how one note can be worth more than two coins.
Demonstrate the principle with their items, such as building bricks. You could demonstrate how one or two building bricks aren’t worth as much as one tower made out of building bricks.
It’s important for parents to understand how children often view the worth of things in terms of how many they are and not by how valuable others perceive them to be. This is why bubble wrap is often more exciting than the toy wrapped inside.
5. Stay Away from Spending
You might have had your first taste of money by walking over to the hot dog guy and buying yourself a hot dog with some money your parents gave you. Whilst it’s a good way to build up confidence and understand how transactions work, it’s the wrong way to begin. It’s starting from spending, so you’re showing a child how to spend your money.
This has absolutely nothing to do with managing money.
Remember how children often value items in terms of how many there are. If the hot dog guy gives them change, they might think they’ve been rewarded for spending. It sounds trivial, but this concept influences them subconsciously throughout their lives. It’s why so many people find it easy to eliminate a bank balance on a screen in exchange for lots of little trinkets.
6. Cash over Plastic
Try to pay with cash in front of your child. It’s too difficult for such young people to understand how a silly little card can have the same value as dollars handed over the counter.
Leave things like interest, debt, and paying on credit until they’re older.
7. Worth of Work
Children tend to assume money comes from mommy’s purse. They don’t understand where it really comes from. When daddy goes out to work, it isn’t always clear he’s going to earn money to buy lots of nice things. Kids should understand where the money comes from to buy them stuff.
You need to explain how work gets you money and other things. Set them to work and encourage them to do things for themselves. Tell them to tie their shoes, clear the table, or wash their plates. Reward them more for bigger tasks.
This reinforces the fact more work and harder tasks are worth more than sitting around and doing nothing. Even if it doesn’t always work exactly like this in the real world, it’s basic enough for a child to understand.