Author Bio: The writer has been linked to the financial industry and as a parent understands the value of educating children on better spending habits. She writes and lectures on financial issues on a broad range of topics and takes a keen interest in educating children to be financially independent.
Financial management or developing prudent habits in spending is not for adults alone. It is equally essential for children to be educated from an early age to inculcate the right habits when spending. Age is not a factor when it comes to being financially savvy.
The BBC looked recently at how children should learn the basics of financing earlier on in life. In fact the earlier we begin, the more beneficial it will be for our children to better manage their finances, especially with a mind boggling array of financial products in the markets when they reach maturity. Yes, it’s not just about how kids save money, although that is a good place to start.
It is also about helping them to make better informed financial decisions, which will motivate them towards financial independence and help them to make the right economic decisions when they are adults. This includes explaining to them about mortgages, loans, car loans and interest rates and credit cards.
Our national curriculum doesn’t always equip children to know about these important topics (but recent news suggests that might be about to change😉 either way it is important for parents and family members to equip or reinforce to kids the knowledge they need on financial products and topics before they embark into the big, bad world.
You may think your children shouldn’t be applying for loans when they’re older and would prefer not to talk to them about it. This is understandable. However, statistics offered by Wonga show that individuals of the age group of 25-34 make up 35.9% of the respondents that go for payday loans, a fact that reflects the younger generation do need to get short term monetary solutions every now and again, and will need to know how to approach this topic. Even if they don’t apply for a payday loan, they may well need a mortgage. Similar principles apply, so teach them the ropes whilst they’re young.
A few ways by which you could help your children to learn about managing personal finances are –
☑ Kids need to be advised about the value of saving from an early age. This could be done by leading by example and showing them ways to economise and refrain from overspending, especially when using credit cards.
☑ Make them understand the difference between needs and wants. This will lead to them developing a better understanding and making more sound decisions in the future. Help them understand what are necessities and need priority over other goods which could be bought later. Help them to set goals whether it is saving for things to buy later and to become more responsible when spending.
☑ An innovative way of making them save would be to pay them interest on the money they save at home. It will serve as an incentive for them to save later on.
☑ Giving them a weekly allowance will help them to feel a sense of financial independence and educate them as how to go about spending it wisely. If you give them £20 a week, advise them to save about 10% i.e. £2 a week.
☑ Help them in setting up their own bank savings account. Beginning early is the key to success; only remember you will have to accompany them if they are minors. Give them the freedom to make spending decisions. Just teach them the value of researching before expensive purchases and waiting for discounts and end of sales periods to get the best deals. Explain the pros and cons on spending hard earned money.
☑ Help them to keep a track record of expenses over time. One way to achieve this is by setting aside 12 envelopes (one for each month) and helping them to set aside receipts of all their purchases made during the month. This will help them develop an idea as how to budget and being able to distinguish between regular and ad hoc expenditure over a period of time.
☑ A good way to instil the value of money in children is when we take them shopping. This can be achieved when we take them to the supermarket which would be a great way to demonstrate planning your shopping and budgeting. This could be done by making a list of items to be purchased for the week, while avoiding impulse buying and making a comparison of prices for quality and value.
☑ Once they are in their teens they could be helped to take their first tentative steps in the stock markets, especially those parents who are into the markets themselves and understand how to work them. A few shares could be allocated to them and they could follow the specific company’s activity along with the adults. It is an exercise which works effectively for brands they identify with as it builds up a sense of interest. Once they are older they could be encouraged to invest small sums of their savings in buying shares of their own.
These tiny steps could lead to them being more savvy spenders when they grow up and are financially independent. It does take time and effort on the part of the parents but this goes a long way in ensuring that our kids learn the value of financial management, at any early stage of life, which would help them to achieve a secure future and financial well-being.
