How To Teach Your Child Financial Responsibility
Financial responsibility or in simple terms responsibly managing one’s money is a skill that’s never too early for young kids to learn. In fact, as early as 3 years old, your child is ready to absorb money matters around him.
But if you still haven’t started teaching about financial responsibility, not to worry. It’s never too late to start.
Financial responsibility is an area where many adults also struggle and that’s exactly why we as parents need to develop this essential life skill in our younger generation.
How do you teach your child financial responsibility?
It’s not that hard. Let’s see what we can do as parents.
Strategies for Teaching Financial Responsibility to Children
For young kids, financial responsibility can be defined as earning, spending, saving and budgeting.
If you are not sure, yes children as small as 4-5 years old can do all these things and this article focuses on how we can set a good foundation for financially responsible adults.
Because this invaluable skill is going to make their lives so much easier someday, with or without you.
Introduce basic financial concepts, such as earning,spending, saving, and budgeting
For toddlers, encourage using objects like leaves, rocks or sticks and role playing shopping.
A piggy bank is always a good way to start introducing real money for kids. They can collect coins they find at home or outside.
Assign age appropriate chores like cleaning, making beds, emptying the dishwasher and give an allowance.
Show them that they can work towards some big savings to get something they really like. Ex: A toy
As they grow, open a bank account for them and teach them how everything works.( while keeping track of their spending)
If the kids blow their money on unnecessary things, don’t help them. Let them learn the important lesson of budgeting. They might go with no treats for some days, but that’s ok.
Encourage children to set financial goals and track their progress
If the kids are asking for an expensive toy, tablet, concert tickets encourage them to earn and save in what ever way they can.
Be excited to count the coins in their piggybank together and advise them to note down the total.
You can motivate them more by offering the same amount as their saving for the funds so that they will tend to save more and more.
Provide opportunities for children to earn, save, and spend money
They can do extra chores like
- Cleaning the garage
- Lemonade stand
- Sell craft
- Collect plastic cans and sell them
Whenever you can, let them buy something for themselves with real money. (not the card)
Because with notes and coins, we really feel how much is gone and how much is left.
Use real-life examples and scenarios to teach your child financial responsibility
If they spend extravagantly and go without money, don’t hurry to help them. Help them find ways to earn more and advise them to cut off their treats and pocket money for that period.
Talk about how you made it work and what you did right and what what you should have done differently regarding financial decisions.
Discuss the consequences of poor financial decisions
We need to talk about opportunity costs all the time.
Ex: If you spend all your money on treats, you won’t have enough to buy a present for your friend’s birthday.
They need to know that the moment they spend money, they lose the opportunity to do something else with that money. So it’s best to manage your money wisely.
How financial responsibility benefits children in the long run
These positive money habits will make your children more confident and successful in the long run.
In short, peace of mind you get when you don’t have to worry about your essential spending or even better all your needs and wants is something everyone needs to enjoy in their lifetime. Our children deserve that life and we can make it happen.
Helping children develop healthy financial habits
For children, it’s best to introduce a simple rule like 5:3:2 concept. If they earn 10 they spend 5 for their essentials, then 3 for fun things like toys, movie, treats and then the rest of the 2 for saving.
Don’t forget to stress the importance of saving for a rainy day.
Help them understand how life can change and what a rainy day means. Sickness, death, accidents, losing a job etc are part of life and help them understand it.
Fostering independence, self-sufficiency, and positive money habits
As children learn to save their earnings to do a bigger purchase, they learn to be independent and self sufficient.
They will decide what they are going to do with the weekly earnings they get (from cleaning or household work) and through trial and error they will learn what essential spending is and what non- essential spending is.
Read more about encouraging independent play for kids
Preparing children for future financial challenges
We can’t predict what the future holds for any of us. But positive money habits along with good ideas about budgeting will always help in cases of financial challenges.
Tips for Supporting Financial Responsibility in Children
Set a good example by practicing responsible financial habits yourself
Talk to them about budgeting. Take them shopping. Look at the catalogue together.
Tell them about bulk buying, shop discounts and half price.
Ex: Look this butter is half price. I am going to buy 3 of them. I can use some for your birthday cake next month.
If they are asking for something you can’t afford, explain that you first budget for essential spending like food, fuel, bills and medicine. The fun things come next.
Without giving them a depressing idea about the cost of living nowadays, we can just give them the idea that food, bills, fuel, medicine and emergency fund are essentials and all the rest can wait or the children can work towards them.
Have an emergency fund and explain to them why it is a must-have, no matter what.
Praise and reward your child's efforts to be financially responsible
If they show interest in earning, saving and spending wisely, offer praise and they will do better.
Ex: Wow! Your toy car is such a bargain for 10 dollars.
You saved 26 dollars last month. I am proud of you.
Offer guidance and support when needed
When needed, don’t forget to step up real quick.
You can offer options for what to do with their money, where to deposit it, how to find coupons and discounts, your ideas on income generating paths etc can help the children a lot.
Encourage your child to ask questions and seek advice when making financial decisions
Doing their own research is a good thing but asking questions from a family member, will help them in so many ways.
Because in financial matters, experience counts in.
Always discourage hasty and sudden financial decisions and always encourage them to ask questions.
Encourage your child to give back by donating a portion of their money to charitable causes
Finally, teaching financial responsibility will never be complete without their contribution to charitable causes.
Always talk about the importance of giving back.
In Summary...
Financial responsibility is an essential skill that we need to imbibe in children.
There are so many ways we can teach financial responsibility to little ones using simple concepts like earning, saving, spending and budgeting to little ones.
Modelling positive money habits, discussing how you budget for monthly expenses, introducing income generating avenues and piggy bank are some ways to start teaching them financial responsibility.
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