Deciding when and how to teach your kids about money can be tricky.
While you don’t want to give the impression that money is the most important thing in the world you do want to make sure your children have a good understanding of how to use it responsibly. Habits learnt in our childhood often stick with us throughout our life so here are a few simple tips to help you ease your young one into the world of money.
1. Do you really need another toy?
Explaining the difference between wants and needs is one of the first step towards learning about money. It may sound simple but it almost certainly won’t be straightforward to your pre-schooler who is convinced they need a new toy every week.
Start with something basic like food or clothes and explain how both are necessary to survive. While it may be difficult to grasp at first, kids are great learners and will soon catch on with a bit of repetition.
Try and incorporate the words into everyday life by asking if something is a need or a want when shopping. Explain that we have to buy the ‘need’ items before we can by the ‘wants’ with the money left over.
2. Keep it real
Using real life situations is the simplest and most effective way to teach young children valuable money lessons, even before they are old enough to count.
Show them how much $5 can buy in a grocery store, or as they get a little older, compare cheaper and more expensive options of the same product and let them help find an item for the best price.
When you next withdraw money at the ATM, explain that it’s the money you earned from working, not a magical box that gives out cash.
There’s lots of good examples you can use at home too; show your child the electricity and internet bills to demonstrate that all things cost money.
3. Start saving for a treat
Introducing a savings goal for an item that your child wants is a good way to show them how saving can pay off in the long term.
Start by implementing a pocket money system and give them a dollar for each chore they complete such as packing up their toys. Encourage them to put the money in a savings jar or a good old fashioned piggy bank.
You could also offer to match their savings dollar-for-dollar as a further incentive to get them going. Explain to them that forgoing short term pleasures like lollies or small toys means that they can get that big ticket item they want sooner.
4. Paint by numbers
Once your child has a savings goal, help them visualise the process and keep it fresh in their mind. Drawing a chart that they can colour in when they reach certain milestones will give them a clear picture of their progress and keep them motivated.
For the more tech-savvy child there are electronic “piggy banks” on the market that automatically add up the money you deposit and include lights and sound-effects to make the whole process extra exciting.
5. Open their first savings account
It’s never too early to start saving and opening a savings account for your pre-schooler is an easy way to help them out financially in the long term. Do your research first by comparing options as kids accounts can often come with certain conditions.
For example, check if monthly deposits need to be made and if so, if there’s a minimum amount. Some accounts restrict withdrawals so if you will be taking money out once your child reaches a savings goal make sure you have an account that allows you to do so. Also, check if a withdrawal will lead to a cut in the interest rate offered by the bank.
Take your child into the bank with you when you next go to the branch and let them hand over their cash to deposit into their account. Here’s where it is important to go home and use the visual aid to show them that their money hasn’t disappeared but is instead helping them reach their goal.