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Financial literacy is one of the important lessons you can give to your children. In fact, this should also be incorporated in our educational system to help the younger generations become money-savvy individuals in the future.
At home, you have the power to raise financially literate children by introducing to them money-related concepts as they are growing up. Here are 7 steps you can go through.
1. Train them to prioritize one thing over another.
It’s funny that money training begins not with something related to finance. It’s when you find them convincing you to buy every toy they see and love when you’re in a store. This is a good opportunity to teach them that you can only buy one thing (even if you can afford everything) and they must only choose the best one. In essence, this is a good way of teaching them self-control. It won’t be easy at first though, and most often, they’ll be crying loud in the shop. Have patience though, as sooner or later they will understand what you’re trying to teach them.
2. Introduce to them the value of stashing money for the rainy days.
There will come a time when they start receiving cash gifts from their relatives and godparents. This is a good time to introduce them to a “piggy bank” savings and the importance of not spending the money they receive right away just in case they want to buy something expensive later on. It’s more exciting to use clear glass jars instead of the usual piggy banks because your child can see the progress of their saving habits as the money reaches the top.
3. Challenge them to make buying decisions based on what they have.
This is related to the first step, but this time, they have to consider the savings they currently have. The decision making becomes more challenging because they have to make sure they buy something that’s of great value considering that their money is limited.
4. Show to them the procedures in setting financial goals.
Do they want to own the latest game console? The newest set of trading cards? It’s time to show them how to set financial goals and the means to achieve them. Let them write down on paper how much they should save and list the possible ways to earn more money. It also helps to have a separate list of the possible expenses they may encounter along the way to help them create a realistic plan.
5. Let them experience the established banking system.
While money jars can give motivation for children to reach financial goals, it’s wise to introduce them the concept of having a bank account later on. Many establishments offer “young savers” passbook accounts to encourage kids to save money. Besides, when they’re a bit older, they will already be able to visualize the value of their money by looking through the numbers in their passbook unlike the younger kids who prefer seeing their money in a jar. Furthermore, the money deposited in the bank can also earn interest income. It’s a trivial amount but it’s a good way of introducing interest rates to children who might be interested in the stock market in the future. It’s also a concept to fully understand before they start to meet organizations who can borrow money or provide loans when the need arises during their adult life.
6. Teach them the importance of working to earn money.
Children who regularly receive cash for no reason will have the tendency to take money for granted. They’ll end up spending for things that have no value to them. By introducing to them the value of earning money through working, they will take good care of their finances, making sure that they won’t just waste the time and effort they sacrificed just to earn. You don’t have to give them real jobs though. You can introduce monetary rewards for simple chores, as an example.
7. When they’re older, give them regular allowance that’s just enough for their needs.
You’ll be giving them weekly or monthly pocket money to spend while they’re in school but make sure you won’t give them too much. This should be a good chance to test the saving habits they learned in the past year. You don’t have to constantly ask them about the money though. If you raised them right, you’ll just be surprised how they continue depositing their savings in the bank even if you’re not watching them.