Money is a key tool in life and is crucial for survival. As a matter of fact, basic essentials for living such as food and water has to be bought by money. That is why we as adults, know clearly about the importance of financial literacy.
But, what about our children? Is there really a need to teach them financial literacy when they have only just started learning how to count?
YES! With figures showing the ever increasing debt level in the form of loans for education, credit cards, housing and retirement around the world, the need for our children to be finically astute is more pressing than ever. The ability to handle money intelligently and responsibly is essential for our children’s future. Yet, ironically, we don’t see personal finance classes offered readily in schools to prepare our children for the harsh reality. So, where does the responsibility of learning one of the most vital life skill falls on? You, parents.
Here are three suggestions for you to help your children become more financial literate. And I promise it is not as boring and complicated like you would imagine it to be!
1. Allowance Method
The great thing about providing allowances to children is that it provides a perfect hands-on experience for them to learn how to handle their expenses. Allowances give children the power and freedom to decide for themselves what and how much to spend. At the same time, they learn an important life lesson of being responsible and accountable for decisions they make.
The amount of allowance and duration of allotment depends on the age and needs of children.
Say, for instance, a primary school child could receive an allowance of $6 per week while a secondary school child could receive $35 biweekly. If they decide to spend their entire allowance on a new video game that just came out, too bad. They would have to bear the consequences of having insufficient pocket money for the rest of the week or month.
In the beginning, it might be hard for children to differentiate between their needs and wants. As such, they would have to turn to you asking for more money. It is important for you to not give into that pair of puppy eyes staring at you but stand firm to your rule. Only then, by making mistakes and sacrificing a few cups of bubble tea they see their friend enjoy, then would they learn to better manage their finances the next time they receive their allowances.
2. Recording expenditure
Starting a chart with your children to record the expenses that they spent is a great way to keep track of their finances and allowing them to realise where their money went. To start off, identify the few main categories that they usually spend their money on such as food, school supplies, snacks and games. Next, record down the expenses they spent each day and note their trend of spending.
At the end of the allotment period, you should review the chart together with your children. Parents have both the experience and perspective that children do not have when it comes to finances. You should thus make use of this edge to guide them in achieving financial literacy. If you notice something off, it would be your job to highlight to your children what they should take note of when they receive their next allowance. For instance, if they went over budget and became short of cash, go through with them on where their expenses went and what they could take note of to prevent the same thing from happening. If they have leftovers, encourage them to save it up.
However, it is crucial to take note of your tone and word choice when talking with your children about their spending habits. Using strong words like “can” or “cannot” is a no-no. After all, it is important to remember that the allowances they have is their money and it is crucial for them to make decisions themselves in order for them to become independent and financial literate. Instead, asking reflective questions on their budget and method of spending could allow them to think of their actions leading to self-realization. Reflection is a powerful teaching tool.
3. Differentiating between needs and wants
Create a list with your children to identify the necessary and the just for funs items that they desire. In fact, one of the best teachable moments would be when your children make requests for candies, toys or school supplies. Instead of conceding to all of their requests, make them decide for themselves the things that they truly want and need by agreeing to only purchase one item at a time.
By having to choose one out of two choices, children are unknowingly forced to decide for themselves what is more important to them. Along the way, they learn how to be more financially independent and mature instead of relying on what others want or say. This is also a critical exercise for your kids in order to cultivate the habit of not spending more than what they have. This helps keeps them from overspending or getting into debts when they are older.
Achieving financial literacy is not a one off thing that happens overnight. Instead, it is a set of habits that need to be cultivated with time, patience, experiences and mistakes. It is our job as parents to guide them and give them the necessary advice and lessons for them to succeed in the real world. Knowing that my children will enjoy financial independence and free from carrying the burden of debt is a huge relief. That to me, is why I strongly encourage starting financial literacy from young!
We will be having a series of articles on how parents can incorporate financial literacy into their parenting plan as well as an extensive panel+workshop on July 27, 2017.
Click here for more information on this event: Start Savvy: How to Prepare Your Kids for a Life of Wealth
Knowing how difficult and tough the path to achieve your goals can be, Eunice never forgets to give back to the society and help those in need. At Fullerton College, she collaborated with UNICEF to start a club on campus to help children way less fortunate than she is. Academically, she also took on tutoring positions in school to help her fellow schoolmates in their studies. Outside, she volunteers with organizations to tutor homeless children in California.
Having spent most of her life growing up in a man-made environment, Eunice loves to hike during her free time where she can enjoy what mother nature has to offer. The breathtaking scenery at the top of hike also serves as a reminder for her that most good things come from being able to push through hard and tedious work. Fun fact: she hiked Grand Canyon when she was 17 and climbed Mt. Fuji when she was 19!
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