Unless you have a multi-millionaire dad, every one of us is finally understanding the true importance of money. Some of us probably wish we knew this earlier. So, as we move into the next phase of our lives and start having a partner and maybe a family down the road, we should impart these important money lessons to them. This will ensure that they don’t grow up thinking they should have realized some things earlier.
There are basically five important money concepts everyone needs to know, and here are how you can impart it to your children.
Your children/ child need(s) to know that money doesn’t grow on trees or magically appear from machines at shopping centres. Now we don’t think making your kid work for their allowance is going to make them interested in money, so don’t touch their allowance yet.
What we can do here, is get children to do household chores to “earn” extra money. Tie these chores to responsibilities rather than ad-hoc work, this will teach them that to earn money you need to be responsible. Some ways this can happen is to put them in charge of cleaning plates every Mondays or sweeping the house every Saturdays.
At the end of the week, put that money in their hands rather than get what he or she was “working” for to buy.
Why do we advocate putting the money in their hands? This will teach them the importance of setting money aside versus spending money.
At the end of every week, your kid will have his or her allowance and earnings. They have to understand that they need to make this money last and still set aside enough so that they can buy what they wanted to. Many adults can’t grasp this concept with the huge credit deficit in Singapore, so this will be a very useful skill for your child.
Budgeting means your child will understand that portions of his or her money will have to be spent a certain way every month. This is his or her responsibility. You can delegate the responsibility of buying food for one dinner every week to your kid to make him or her understand this concept better. You can tell your child to explain how he or she will spend the money for the week on food at school, food at home for one day and buying toys that he or she wants.
After figuring out that he or she has to live on a budget, your kid will grasp the concept of saving for that toy he or she wanted to buy.
This will make him or her better understand that they have to make a choice to either “save to buy something later on” or spend more to live “luxuriously in the present”. They will understand that it’s their choice to either save $3 a week for 10 weeks or $5 a week for 6 weeks to get that $30 video game they desperately want to have.
You child needs to understand the concept of borrowing. This will happen when he or she falls short for the week and requires more money. You can give them an advance allowance but explain that during the week after, they will receive their allowance but will be required to pay “interest” on the advancement.
This is especially important when your child grows older and can apply for credit cards.
Investing is another very important lesson for your child. After figuring out that they have to save in order to buy a bigger ticket item at the end, they will need to understand that they have to invest for the longer term.
One way to introduce this is to use the risk versus reward concept. Where they can put their money into a safe investment and get slightly money in the future, or they can put their money in a risky investment and get a lot more or a lot less in the future.
A fun way to do this is to tell your child of the company that makes his or her favourite toy or sports equipment. That they can invest in quality companies that make great products that people want.
This should be done together in a family setting and not leaving your child to his or her own devices. The trick to this is making it fun but imparting the concept of risk and reward.
Your child is going to be left to his or her own devices one day, and you want to prepare them to understand how finances can make or break them. Your child will eventually be adults and let’s hope they don’t “wish they knew this earlier”.