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Powerful Ways to Teach Your Child About Money
Pre-school children are like mini sponges, soaking up knowledge and experience every second of the day. Whether you realize or not. Your toddler or pre-schooler is already learning about money. Sure, they are not calculating interest rates or learning about selling structured settlements but they are beginning to understand that certain things have value – to them and to others – and that sometimes a price has to be paid to obtain them.
Even a common instruction such as, “Be good and you will get the candy bar,” is teaching your child that effort is needed (behaving) in order to achieve a reward.
So it is never too early to educate your children about money and help them to take the first steps on the path of healthy money management.
Get Your Children Handling Money
Children of all ages love playing games with money so what better way to educate them than to give them some coins and notes of their own. Real money can be a bit unhygienic though so printing out some fake money or buying a play shop with toy money is probably a better option.
From sorting and counting games to ‘playing shop,’ handling money opens up all kinds of opportunities for teaching about money. Keep the games light-hearted and fun to avoid money being associated with a negative experience.
Tie Money to Reward
How about the dreaded allowance? How much should young children get? Should they have to work for it? Is it even appropriate to ‘pay’ your own child?
Opinions vary but it seems healthy to introduce a work ethic at a young age and to introduce a reward system. It is probably not a good idea to award an allowance for trivial and expected day-to-day activities and chores (your child shouldn’t expect a reward for brushing his or her teeth!) However, more demanding chores, particularly if your child shows initiative in performing them, could be tied to an allowance.
If you do decide to award an allowance, it is time to talk about banking.
Explain the Role of the Bank
The sooner you can dispel the notion that the bank is akin to a money tree, the better. There is no need to bamboozle your pre-school son or daughter with financial concepts at this stage; explaining the basic idea of a bank as a place to store money (with your debit card as the key) should suffice.
Mirror that by giving your child their own bank. Although ‘piggy banks’ have a lot of history to them, a humble (safety) glass or clear plastic jar is a better bank. Why? Because your child can see how much they have! A transparent money bank can help with some of the following teaching tips too.
The most financially shrewd people on the planet often swear by this simple teaching method. This method works right from the toddler age upwards. Here is the basic concept: any time you are about to reward your child with something, offer them an added benefit if they wait for it. It’s that simple.
For example, if you have just completed a trip to the store and your child is clamouring for a candy bar, offer them the option of eating one bar in the car or waiting until they get home and having two.
There is evidence that children who naturally delay their reward grow up to be more financially astute. Don’t worry if your child always goes for the immediate hit though. Just use your parental prerogative to enforce the delayed gratification (and let them think it was their idea when they eventually get their reward!)
For older children, you can use the same concept with their money bank. If they want to raid their funds to buy a toy, offer to add an extra coin to their collection if they delay.
All of the above is educating your child about the reward you get for saving money (i.e. interest payments)
Discuss Priorities with a Wish List
If your pre-school child is just not getting delayed gratification, this exercise can be very useful. Introduce the idea that there are items of low value (e.g. sweets) and those of high value (e.g. a new bicycle) and get your child to order them in a ‘wish list’ (you could create and cut out some simple tiles out of cardboard).
Explain how high value items take a long time to save for and how wasting money on low value items means you need to wait even longer.
Be Cruel to be Kind
Another lesson often recommended by the financially shrewd is a harsh one: to shatter the myth of double spending. Many parents go the whole hog of providing an allowance, rewarding delayed gratification and discussing priorities only to undermine their good work by bailing their child out.
It goes something like this: your daughter has tidied her room to perfection, helped dry the dishes and been an angel all week. She denied herself candy and saved $10 worth of allowance to buy the toy she had her eye on.
Then she goes to the store, buys the toy and, on the way out spots an even better toy for $10. She gets ‘buyer regret,’ and wants the new toy. Impressed by her week’s efforts mom and dad buy her the toy anyway – and deprive her of a powerful life lesson about how money is a finite resource and when it’s gone, it’s gone.
Putting it on Paper
Households which go to the effort of writing down a budget have a much better chance of living within their means. With bill automation, paperless statements and virtual wallets it is easy to fly through life without thinking about what we are spending so organizing a budget helps us to ground our finances.
Even if your toddler is unable to write yet, the act of seeing you putting pen to paper and recording expenditure sews the seeds for good habits later in life. For older children, you might even get them to enter figures on the household spreadsheet.
Be a Role Model
Prior to starting school, a child’s parents are (or should be) by far the biggest influence on their development. Everything you do will be scrutinized and often copied by your little ones.
Therefore, the best money lesson you can give is practising what you preach. So, take your son or daughter shopping with you, explain your purchase decisions, involve them in your bargain hunting and let them help you write out a shopping list. You and your children will reap the benefits over the many years to come.
Thank you Kathy for this great post. Kathy Manson is a Finance Coach and Blogger. Currently, she is working on cash for structured settlement at http://www.catalinastructuredfunding.com. She is very proactive and aware about each and every update of financial changes in the industry. On Twitter @ structuredfund.
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