Any good habits can be bred at a very young age. Learning positive attitudes towards money is no different.
Research has found that children understand financial concepts much sooner than many of us realise. The University of Cambridge has found that by the age of seven children will have developed ideas about money that will stay with them through the rest of their lives.
So, it is important for parents to be aware of the habits they are encouraging even at this young age.
To build a good financial grounding, here are five ways to teach your children about money right from the start:
1. Involve them in “adult” activities
All children enjoy feeling “grown-up” and being a part of what adults are doing. And this doesn’t have to be anything out of the ordinary. As the Cambridge study notes, there are many opportunities to engage with children about money concepts in day-to-day life:
“The enjoyment of doing something with the parent, the familiar habit of the weekly shopping trip or the feeling of mastery in participating in ‘adult’ activities like going to the bank, provide sufficient meaning and motive for young children.”
Simple things like letting your child swipe your credit card at the till and explaining how the transaction happens are worthwhile lessons. While we might take for granted the fact that groceries have a value and need to be paid for, children still need to learn these concepts. And they learn best by being part of them.
2. Give them an allowance
It may be one of the oldest pieces of advice when it comes to teaching children about finances but giving them some of their own money remains one of the best ways for kids to learn.
Global asset manager T. Rowe Price found in a study that children who get an allowance are twice as likely to say that they are knowledgeable about finances. They are also a third more likely to feel that they are smart about money.
When children have their own money, they get to experience spending and saving for themselves. They learn by doing, and this reinforces conversations that their parents are having with them.
3. Allow them to make mistakes
One of the most important aspects of giving your children their own money is that you shouldn’t then dictate what they do with it. For them to really learn from the experience, they have to be allowed to make their own mistakes.
It is tempting to bail them out if they spend too much or use their money poorly, but they need to face the consequences of those decisions. Learning those valuable lessons early will help them to develop good financial habits for life.
4. Involve them in family decisions
A great way to teach children about the importance of budgeting is to involve them in planning a family holiday. Explain that there is only a certain amount of money set aside for the trip, and they need to help to decide how to spend it.
This can teach them powerful lessons about the need to make trade-offs when it comes to finances. And because a holiday is a fun experience, it also helps to reinforce the idea that money should work for you, and not just be a burden.
5. Set a good example
The most important way to teach your children about money is through your own behaviour. Children learn from what they see the adults around them doing, so it’s important to be role models.
Put another way, the best way to teach your children about finances is to have the kind of relationship with your own money that you would want your children to have with theirs.
To discuss good financial habits, speak to a professional.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.