Importance of financial lessons
The importance of teaching kids about money cannot be overemphasized. Sources project that money lessons will help guide kids against the confusion most adults of this age currently have about their finances which has left them with several financial issues. In addition, recent research and studies have revealed that there will be an increase in the cost of several expenses, including getting a house and sorting out your retirement. Thus, it is important to equip children with all the teachings and lessons they need to handle their finances.
Studies revealed that by equipping children as well as young adults with some vital skills and information, they have consistently done better than their parents in term of managing their money. For instance, in recently released research conducted by Nimbl, a prepaid debit card and phone application for people between the ages of 8 and 18, children were found to save 7.5% of their weekly pocket money and this percentage is in contrast with adults who only save 4.9%.
The study further highlighted that the average weekly pocket money is about £10.26 and nearly half of children personally made a decision to keep some of their allowances by themselves with no prior encouragement from their family.
Although primary financial education is now a part of school curriculum, London Institute of Banking and Finance, however, released a report which indicates that 54% of teens between 15-18 years in full-time education still do not get any lessons on financial education from their schools. The report further shows that boys have had more of financial education than girls and those from less privileged class also have lesser financial education training.
Teaching money lessons
There are vital lessons parents and guardians can teach their children and wards about money and preparing them to become financially independent.
1. Teach them to cultivate a saving habit
There is no defined time when one ought to begin saving, and so no child is too young to start. Take conscious efforts to encourage your kids’ engagement with their finances as it is an excellent way to build up their financial independence. You need to make them realize having money doesn’t mean you have to spend it all at once.
Consider opening an Individual Savings Account for them, so compound interest begins to accrue on their savings early enough. Also, ensure that you carry them along so they get excited and know how much their money can increase just by saving rather than spending it all.
2. Teach them how to spend on a budget
Saving is as essential as budgeting. Writing and planning a budget helps them learn how to determine what they need and cut out irrelevancies. It also helps them keep track of their spending habits. Try to be flexible with this teaching, for instance, hand them a specific sum of money to get whatever they need and make sure they buy within that budget. Knowing that there is a limit to what they can buy on a budget will help them develop a better understanding of value, and this will come in handy when they are independent and have to start making financial decisions.
3. Give them lessons on being credit smart
Research reveals that there was a reduction in credit card borrowing at the beginning of the year, however, borrowing still towers high since there are several available borrowing options. It is thus crucial that your children understand all they need to know about borrowing, so they don’t end up in debt. Teaching this can be done by lending them an amount of money and fixing an interest rate to be paid back monthly. Once they have paid it all, you can give them the whole sum back.
4. Pay them to do house chores
One way to teach children the value of hard work is by giving them an extra allowance for helping with house chores. In addition to teaching them the value of hard work, it also bestows them with the responsibility of making money for themselves and saving from a tender age. They value and appreciate money more when they realize that they did not get it free and had to do some form of work for it.
5. Break down the financial terminologies
So many new offers keep springing up in the finance market, and this comes along with a lot of financial terminologies. Some of these terms are in fact quite complicated for adults. Not having a clear understanding of terms such as the Annual Percentage rate (APR) charged on a credit card can affect their understanding of finances later in life. It doesn’t have to be difficult to explain as there are several resources online that have broken down these terminologies. Find these resources and put your kids through.
