This post was updated on July 17, 2017.
School taught us how to count, but not how to manage our money. However, Money Advice Service revealed in 2013 that most kids’ money habits are developed by age seven. Thus, it’s important for parents to have money lessons for kids in their arsenal.
As author Susan Beacham points out: “Parents are the most impactful teachers in their kids’ lives.”
But how can you impart good money habits to your children? Keep on reading to discover ways how you can teach your kids about money.
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Ages 3 – 5: Patience and Delayed Gratification
According to a paper from University of Minnesota Extension, kids in this age group “see money as a way to get things they want.” Add to that their expectations to receive a treat whenever you bring them to a store.
As a parent, your role is to teach your children that it’s not always the case. Moreover, they need to save up for something they want.
Here’s how you can teach them the value of patience and delayed gratification:
- Whenever you’re waiting in line with your child, discuss the importance of waiting for his or her turn. The key here is to take advantage of your kid’s natural curiosity, and turn waiting time into quality time with your toddler. Remember: Good things come to those who wait.
- Let your kid set a saving goal, say a toy he or she saw during your last trip to the store. And then come up with a plan on how he or she can earn the money that he or she needs to save. That way, you’re able to impart to your child that money is earned through hard work. Just make sure that the goal isn’t pricey. Otherwise, the saving goal would be frustrating for your toddler.
- Use the “Three Jars” method. Get three empty jars and label each as Saving, Spending, and Sharing. Every time your child receives money—whether through a small allowance or as a birthday gift—divide it among the jars. The Spending jar is for small purchases, Sharing jar is for charity, while Saving is for bigger purchases like the toy mentioned previously.
Ages 6 – 10: Spending Wisely
At this stage, this is where kids are starting to learn what money is. However, they may not name coins and bills correctly. They are also starting to imitate their parents’ spending habits.
According to Get a Financial Life author Beth Kobliner, it’s important to explain to your child that money is a limited source. Thus, it’s imperative that you teach them how to spend wisely.
Don’t worry, as they can understand less sophisticated money matters compared when they were toddlers.
- Bring your kids grocery shopping with you. And then, show them the importance of comparing prices. You can say, “This brand of paper towel is 50 cents cheaper than this brand.” Or you can go “It’s better to buy this item in bulk because we can save an X amount of money doing so.”
- Teach your kids the concept of “want vs. need” by asking if the item they want to buy is something they really need. Ask if you can buy it next time (they’d usually forget about it as soon as you leave the store) or if it costs less somewhere else.
Ages 11 – 13: Long-Term Saving Goals and Compounding Interest
Kids this age will start to show interest in having money. That’s because they’re starting to make spending decisions on trendy items for peer approval. If they have good money habits, that would mean they’ll be looking for ways on how to earn more money.
In relation to this, it’s about time that you teach your kids about long-term saving goals and compounding interest.
- Let your child set long-term saving goal for something more expensive, like an iPad or iPhone. As to how he or she can earn the money for it, you can start teaching her about budgeting. You can also teach her the concept of opportunity costs. If your kid has a habit of buying snacks after school, he or she may decide to skip it and save the money for the gadget.
- You can also start teaching your kid about compounding interest, or how a money he or she saved can grow. Kobliner suggests that you use specific numbers rather than explaining it in abstract. You can say something like “If you start setting aside SGD 100 every month, you can have more than SGD 30,000 after 50 years.”
- Encourage him or her to use a compound interest calculator. That way, your kid can see how much money he or she can have after saving a specific amount for a particular time period.
Ages 14 – 18: Choosing the Affordable College
This is the time when kids are starting to have a desire for independence, although they’re still financially dependent to you. At this point, Kobliner suggests that you start talking about college to your kids.
“Tackling the subject early and being honest about what your family can afford will help kids be realistic about where they may apply.”
However, don’t let the tuition fee discourage your kids from going to a university he or she likes. After all, people with college degree earn better than those who don’t.
- Ask your kid what degree he or she would like to take, and start making a list of universities where he or she can apply. Don’t forget to check and note the tuition fee.
- Discuss how you and your kid can finance his or college education. This is where his or her long-term savings could come in handy. He or she can also opt for a DBS student loan.
Ages 18+: Responsible Credit Card Use
If you’re doing well, your child should have good money habits at this age. Otherwise, it can pose a big problem for you and your kid.
According to the Department of Statistics of Singapore, a Singaporean household has a mean credit card debt of approximately SGD 1,926. Thus, Kobliner advises that you should teach your kids how to use credit cards responsibly.
- Join your child when looking for a credit card. Consider those with low interest rates and without annual fees.
- Reiterate the importance of credit history, and the consequences of having a bad credit score. Don’t forget to tell your kid that cosigning his or her credit card could have an adverse effect to your own credit history if he or she forgets to pay the bills on time.
- Explain that credit cards are for emergency situations only and not for daily items. For instance, if his or her savings can’t cover the whole expense, that’s the only time he or she can use the credit card.
What Parents Need to Remember
Our views and opinion about money differs. So do the money lessons we teach our kids. That’s because we came from different family backgrounds and had varying childhood experiences.
Nonetheless, it’s important to remember the following points in order for your children to develop good money habits.
Think in Children’s Terms
Your kids want to know how the adult world works. So when they ask how much money you make, they’re not asking about your salary. They want to know why they can’t always have what they want or go where they want to go.
It’s also important that you teach them money lessons depending on their stage of development, and not based on their actual age.
Allowance is Not the Only Way
Each family has a unique financial situation. Meaning, there’s no right or wrong way to provide money to your kids.
In fact, there are other ways they can receive money other than having an allowance. Kids can ask for it, receive it during special occasions, or earn it.
Regardless, don’t feel pressured to give your kids allowance just because their friends do so. If you’re interested, the Minnesota Extension published a paper on alternatives to children’s allowance.
Provide Intentional Learning Experiences
According to Prof. Sharon Danes and Tammy Dunrud, money lessons for kids should focus on these concepts:
- Earning: How children receive money.
- Spending: How they use money.
- Sharing: How they share with the less fortunate, as well as doing their due diligence such as paying taxes.
- Borrowing: How they acquire money for present use and paying it back with interest in the future.
- Saving: How they set aside money for future use.
You can start teaching your kids concepts 1 – 3 when they start talking in sentences. The latter two, on the other hand, requires mathematical and interpersonal skills. Thus, they can start learning about sharing and borrowing a few years into elementary school.
How Your Kids Value Their Money can Impact Their Future
Regardless of income, it’s important for parents to teach their children about money. These money lessons for kids aren’t just about preparing them to open a bank account or have a stable job in the future. It also has something to do with how they should value money.
They need to understand that conflict about money occurs, which means compromise is needed. Otherwise, they will pay for the consequences for a lifetime.
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