START SAVING EARLY
Teaching children about money and saving
If you ask the average preschooler where money comes from, they’ll probably tell you “the machine in the wall” or “from Mama’s purse”. Even teenagers, who understand perfectly well how hard you work, have trouble grasping that money is not an infinite resource.
Teaching the young the A-B-C of personal
finance accomplishes two important things
It helps you to achieve your own savings goals when the whole family is on board
It sets them up with smart money management habits even before they start earning their own.
Here are some valuable finance lessons that can make it easier to talk about money and can be adjusted to make them age appropriate. Children can be rewarded with greater financial responsibility as they grow and grasp the concepts.
Where does money
come from?
Explain that one of the reasons you (or your spouse) go to work each day is to get paid for the hard work you do. If you don’t work, the family doesn’t get new money. The bank keeps the money safe for you, but you can use it whenever you want, either by getting cash from the ATM or by swiping your card (which sends a message to the bank to let them know).
Work with
what you have
One of the best ways for children to learn about spending and saving is to give them some money of their own. Once they’ve spent it, there’s no more until their next allowance. If they don’t have enough for a big ticket item, they learn to wait while their savings grow until they can make their purchase.
Debt is damaging
When older children nag to borrow up ahead, be firm and explain you will charge them interest on the loan – then stay tough and take that amount off their next allowance. It’s a tough but essential lesson, so they really do feel the pinch and will think twice about getting into debt.
Basic budgeting skills
While older kids can list their income, spending and saving on a basic Excel template or in a special ‘money book’, even young children can learn to take control of their money themselves. One simple way to divide an allowance is to instruct that they split the total into three: some to be kept in a savings jar, some for charity or other caring activity, and the remainder to be spent however they choose.
Saving is rewarding
‘Money in, money out’ impulse shopping is a habit that usually only changes with the harsh reality of being broke. Children can be taught delayed gratification by keeping a wish list and saving for their hearts’ desires. By putting a value to each wish, they can see their goals getting closer as their savings grow and feel a fantastic sense of achievement when they finally have enough to go shopping.
Interest power
At some point, teenagers are ready for the responsibility of their own bank account. Help them to research the best options available, including savings and investment vehicles that can earn them interest. Now is a good time to explain the power of compound interest and how it can help their money grow simply by leaving the interest to accumulate.