As a parent, the task of teaching financial literacy to your child largely falls on you. As much as other institutions like the schools or churches can teach children about money, you play an important role in your child’s financial literacy. Financial literacy for kids is not achieved in a single conversation, neither is it a quick process. It happens over a stretched period of time.
Sometimes, parents may feel like they are very much unqualified to teach their children about money. However, financial experts disagree, as there are no special degrees or courses that can help achieve this.
In case you need help on how to teach your children about financial literacy and money, here are some top lessons you should share with your child. And who knows? You might learn one or two things!
8 Lessons on Financial Literacy for Kids
- Understanding Debt
An important aspect of financial literacy for kids is teaching them to fully comprehend what debt is about. Unfortunately, debt is an aspect of finance most adults are yet to figure out themselves.
As much as you never want your children to stress about debt, you can help them understand the dynamics involved. For older children, you could give them a practical scenario. Allow them select something they want to purchase and ask how much they would be willing to pay for the item.
If the item costs more than the budget, tell them they can’t have it, except they want to borrow it. Another option that can help kids understand debt is to purchase the item for them, but you take out of their allowance till they are able to pay you back the money. With this, they would know what it feels like to owe money, and work to pay it back.
This is perhaps the most important reason why financial literacy for kids is important. Let them understand what a budget entails and how it works. A well thought out and analyzed budget is the first step towards financial independence.
Get them involved when drawing up the family budget every month. This means you have list out your bills on electricity, food, clothes and so on. However, never forget to set a designated amount of money for monthly savings. The earlier a child is taught about budgeting, the quicker they get successful with money.
It could be something as little as budgeting to buy a gift for an occasion. The budget making process should also be as simple and straightforward as possible.
Part of learning about financial literacy for kids includes knowing when and how to save money. They need to understand that savings only increases if money is managed very well.
This lesson helps them to learn how money grows when it is saved or invested, rather than when it is spent without keeping some aside. Money should be saved before spending; this is why parents must teach their children to save money religiously.
The lesson should be practical, especially during festive seasons and birthday celebrations when relatives and friends offer monetary gifts to children. They do not necessary need to spend the money immediately, rather, they can put together all the money received and keep it safely until there’s need to purchase something useful.
4. Emergency Fund
Another part of financial literacy for kids is knowing how emergency funds work. You need to teach your children how to save a certain percentage of money on a weekly or monthly basis for emergency.
This money has to be kept in an account or piggybank they cannot touch, except it is an emergency. You should be strict about handling this account and make sure you set rules they must adhere to.
For example, the money in the account should not be used to purchase irrelevancies like the latest video games, shoes, clothes, chocolates, toys etc. It should be an account where they could only take money out, if they need to purchase items such as a new laptop when their current one suddenly packs up. Setting this emergency fund helps to save for the rainy day and prepares them for unplanned expenses along the way.
5. Track Expenses
A huge lesson on financial literacy for kids is learning how to track their expenses. Children need to be very much aware of how much they spend on a daily basis, so as to track down their daily expenditure.
Thankfully, technology has made it easier, as expenses can now be tracked in digital ways. Get any of those financial applications and install them on gadgets that the children can easily access. This would enable them gain the much needed practical experience.
6. Hard Work
Students have quite busy schedules, so they might not have a traditional job that would make them earn money. This is quite tricky because when explaining financial literacy for kids, they need to understand the reality of hard work.
As a parent, you could even chip in the option of letting your child have a side hustle that would not take their attention away from their studies.
It could be something as little as beadmaking, knitting, selling old textbooks, crocheting and lots more. This extra income, apart from their allowance could even be the starting funds for their savings account. In essence, this teaches them that the more money they make, the more money the can save.
7. Wants VS Needs
It is assumed that every adult knows the difference between wants and needs, but not all children know that. In teaching financial literacy for kids, you need to let them know that the most important thing is to cover their needs, and then if there is extra money left, they can attend to some of their wants.
If children are taught this lesson at an early stage, then they are less likely to go on a shopping spree on pay day when they start earning salary. They need to first sort out their needs, make a budget, save and plan before buying anything they want.
A practical way to do this is to tell them to make two lists; the first should contain items they need urgently, and the other list should be for the things they want. You will be surprised at how quick they identify the main difference between wants and needs.
8. Financial Goal Setting
Goals are those things that drive us in life, so when dealing with financial literacy for kids, it is important to teach them how to set financial goals. As a parent, it is important that you help your children create a budget and set financial goals.
Financial goals could be set for something as little as a shoe or even a new gadget. It might take a while, but they would eventually reach their financial goal.
Remember, children do not have to be 18 years old before they can start learning how to set financial goals or understand prudent spending habits.
As a parent, financial literacy for kids should be one important aspect you must focus on when teaching your children about life hacks. This can set a foundation for making smart financial decisions when they are faced with real life situations in future.