Worried about how your children are going to fare in the property market? Teaching them financial responsibility at an early age can help to shape them into successful homeowners of the future.
One of the most important factors in providing children with a bright future is helping them to master the skills of effective money management.
Take it to the bank:
Opening a bank account for your kids is a great starting point to get the conversation on money going. A savings account to call their own is bound to prompt a host of questions and an endless amount of excitement. It’s a great way to instil responsibility and to help understand the role that financial institutions play in our everyday life.
Saving smart:
Now that your kids have a bank account, teaching them the importance of saving is essential. Work with your kids to establish an ongoing system of putting money into their bank account. Set a few saving goals together and each time a milestone is achieved reward them in the form of “interest”. This will show them that their money can grow if they remain disciplined and it will encourage them to continue being savvy in their spending choices. For kids who are much younger, the same principles can be followed using a money jar or a piggy bank that they can put their spare coins into.
How to budget:
Along with saving effectively comes the importance of budgeting. Teaching your child to budget efficiently is an essential skill that will give them a lifetime of financial security. A lesson on where money comes from is crucial in teaching your children that earning money is a privilege and not something everyone is entitled to. Encouraging a respectful attitude about earning money will teach them the importance of valuing it, which will inspire budgeting all on its own.
Needs over wants:
Teaching kids the essence of prioritising is a crucial skill to master and it will help to combat the chance of reckless and unnecessary spending. Kids will be kids and will always want everything that they set their eyes upon. Helping them understand the difference between needs and wants will enable them to make sensible spending decisions from a young age. A lesson on the importance of meeting your needs (everyday things you cannot go without) before satisfying your wants (things mainly bought for pleasure and entertainment) is essential in understanding the value of prioritisation.
Making smart spending decisions:
Making any good decision requires being critical of your choices and conducting sufficient research before making a binding decision. The same applies with managing money effectively. A smart spender is someone who doesn’t buy on impulse. Making an effort to shop around and compare prices will help to ensure that you are buying things you actually need and in a cost-effective way. Practicing this is also a great way to reinforce the principle of needs over wants. Educating kids on how to make smart spending decisions will help them recognize the difference between careless spending on pointless items versus seeking out a good deal based on a real need.
Identifying when credit is okay:
Teaching children the concept of borrowing money from an early age is another huge part of ensuring a child’s future financial success. Not all credit is bad credit and is sometimes useful in helping to fulfil a worthy cause, like paying for an education or purchasing a home. Teaching them the importance of responsible borrowing is vital so that they don’t grow up abusing the privilege and acquiring unwanted debt along the way.
Understanding the risks of debt:
Teaching kids the dangers of irresponsible borrowing will encourage them to think twice before choosing to spend money that isn’t theirs. This probably isn’t the easiest lesson to teach a toddler, so using an alternate method for younger kids can be useful. One such example can be lending your child a small amount of money, and charging them interest on it until it is paid back in full. Conducting a comparison thereafter between how much was borrowed versus how much they paid back is a great exercise in helping them understand debt management and the extra costs that come with it.
The basics of investing:
As your child becomes more aware of money and other financial concepts, it is vital that you equip them with the necessary knowledge of investments. You don't need to be an investment banker to help kids learn how to make their money grow. By simply teaching them the basics of what an investment is, how to suss out a good or bad one and how to make an investment grow over time, will benefit them in the long run. This will help give your kids the extra edge-factor they need to be financially responsible and knowledgeable of the financial options available to them.
Let them make spending mistakes:
The most important thing to remember as a parent is that kids need to learn by trial and error. It’s one thing to tell your child the stove is hot, but they won’t fully understand what “hot” feels like unless they’ve touched it for themselves – it’s their own experience that will teach them not to play with fire. Likewise, it’s important to offer financial guidance to your kids, but without micromanaging their financial decisions every step of the way. Doing so will inhibit them from making mistakes that could be a vital learning lesson for them further down the line.
Taking the time to teach your children about personal finance is one of the greatest investments that a parent can make, with the highest return on interest.