Teaching kids about money is challenging. We often learn how to teach the value of money by observing our parents, through collective wisdom on social media and having conversations with our children when opportunities arise. This means that children do not get a holistic and complete view about how to manage money. Their learning is limited by what they are exposed to. After talking to numerous parents, here are 3 practical money skills that I think all children should learn, and which parents can incorporate into their teaching:
1) Earning Interest
Most parents have money activities that pay their children for tasks completed and/or encourage them to save. Children then have a limited perspective of money, associating it to an exchange of effort with savings being the end goal.
In today’s world where savings interest rates is minimal, we want our children to have a growth mindset. Particularly around money, we want children to think of how they can expand their sources of earning, and increase the flow of money coming in. If we want to focus on how to earn money as a kid, introducing them to the idea of interest is crucial. Getting money is not the end goal, but rather, getting money to earn more money is a key factor. Interest is important for growth and wealth building.
When children learn about interest, they realise that limited resources today is not a deciding factor of future possibilities. They learn that they just need to figure out how to grow their limited resources so that they can expand their opportunities.
If you are currently teaching your children to save, introduce the concept of paying interest on their savings either weekly/ monthly. Pay the interest out in cash so that visually your child gets to learn that every dollar saved is helping him/her to earn more money.
2) Making An Informed Choice
When children learn about interest, they become more aware of the cost of choosing to spend now. It is no longer just paying for an item that they want but also forgoing the interest that they will get to earn on the money spent.
When it comes to spending, a lot of parents try to ‘shape’ their children’s thinking and decision-making by questioning their children when the child wants to buy something. While asking them “Are you sure?” may help ensure that the child is less likely to spend frivolously now, it can also instil uncertainty in your child’s decision making abilities. In the long run, children can become less confident of their choices, and potentially choosing to avoid taking responsibility for their decisions as much as possible.
What we really want to do is encourage the child to make an informed choice. Rather than asking “Are you sure”, ask
Why.. What… How..
Through the Why, What and How framework, children get to explore the following, building their decision making capabilities and also expanding their growth mindsets.
- “WHY” – The motivations behind their spending. Why do they want it?
- “WHAT” – The implications of this spending and how it meets the motivations. What does buying this do for me? What am I giving up on?
- “How” – Alternatives to the spending. How can I satisfy my “WHY” if I don’t want to go ahead with this purchase.
3) Dealing With Reality
Managing money can be complicated and challenging. While you do not need to expose your child to the complexity of the financial systems we navigate as adults, start them young and expand their horizons by getting them to interact with some of the financial reality outside your family.
For example, when teaching them about interest, you can get them to check out the interest rates of banks. When educating them on choices, introduce them to the world of marketing and explore how their consumer behaviour can be influenced by the advertisements they see. Building up their interaction with external financial sources from young will increase their confidence to deal with the world as they grow up.
If you are after some fun activities on how to teach your children about money beyond giving them household chores, check out this article below or click to read