Learning how to deal with money is an essential life skill and whilst it is increasingly being covered in school, it definitely helps to cover it at home too.
Modern life makes this especially important, as we seem to be moving ever faster towards a cash-less world with ever increasing ways to spend and move money that don’t actually involve the physical transfer of cash. Think of everything from credit cards and PayPass to Apple Pay, PayPal and even Bitcoin.
When that physical interaction with money is removed, it can be easy to lose track of what you are actually spending. It’s also worth remembering that most companies dedicate huge amounts of time and budget to making it as quick and easy as possible to part with your money.
So, how can we help our kids?
Talk about it
Now I’m not saying you should sit them down and take them through the family budget line by line, but you can at least tell them you have one.
Talk to them about what you do to earn an income and what you need to spend it on. Even tell them about the bills and that nearly everything in the home can cost money. Yes, even the data needed to catch Pokémon.
Being able to talk freely about money can be important just in itself.
Let them have their own money
Giving them the responsibility for some of their own money is also a great start. It could be through an allowance, earning money for chores, or even some creative money-making activities like a lemonade stand or yard sale. Actually having that money could help them see it in a whole different way than something that just comes from their parents after a bit of pestering.
Teach them about value
The relative value of things is subjective but there’s lots of opportunities for this one. Even at the supermarket you can point out that for many products you can pay a different price for effectively the same thing. Maybe take one of their particular favourites and compare it to another brand and ask if they consider one to be better value for money.
The art of negotiation
Negotiation is a fantastic skill to have all by itself and learning about it in conjunction with money can be a great introduction.
Perhaps you could encourage your kids to sell some of their old toys at a garage sale or swap meet. Similarly, instead of looking for that brand new and shiny thing, you can encourage them to look at second-hand options first and tie it back to value.
You can browse some garage sales together, compare with a new or recommended retail price and help them work out what they would be prepared to pay and how they might approach a negotiation.
Saving is obviously a good thing to learn but not always easy to actually do. Delayed gratification is not a well-known trait in kids!
A goal can help in a big way, as can the earning of their own money we mentioned before. Work together to identify something they want, set a timeframe, a target, and away you go.
Compound interest and Einstein
Now there is no evidence to suggest that Einstein actually did call compound interest the “Eighth wonder of the world” no matter what the internet might try and tell you. But that’s not to say it isn’t an important concept to get.
Setting up a savings account for your child can help them see that their money can actually earn money. Then that increased amount of money can then earn more money and so on.
It’s a bit of a long game and not as obvious in our current low interest environment, but it’s a vital lesson and better to learn in the positive sense. Compound interest on debt is a large and increasing problem, so learning early about the potential pitfalls of credit could save a lot in the future.
Do you have any tips or approaches to teaching your kids about money? Let us know in the comments below.