a boy reading under a tree

What Your Kids Can Learn This Holiday

“One penny may seem to you a very insignificant thing, but it is the small seed from which fortunes spring”. ~ Orison Swett Marden

Most children become aware of the concept of money long before can add or subtract. Up until they start earning a living, and sometimes well beyond that, most kids are apt to spend money like it grows on trees. Understanding that parents must work for their money might take some time, and even then, the learning process has its wrinkles.

What better time to teach your children about money other than Christmas? This is usually the time we save for, and when we spend the most. It is also the time we are more likely to make financial mistakes. This is the time children expect the most, but could also be the best time for them to start getting financially literate.

Financial literacy is the ability to use knowledge and skills to make effective and informed money decisions. Personal financial literacy encompasses a range of money topics, from everyday skills such as budgeting to long-term planning for retirement. While literacy, the ability to read and write, is a fundamental part of the education system, financial literacy is often left out of the equation. How soon should we start teaching kids about money? When and where is the right time? Financial literacy is one of the most important subjects for a child to learn and carry with them into adulthood, and yet, it is one of the least taught subjects. Kids often learn their money lessons from the (social) media, their friends and all of the fractured and attitudes on money and practices in handling it from the tone set by the parents.

As a parent, you can help your kids start their financial life on the right foot without spending hours every day lecturing them. Here are a few checkpoints:

Needs and Wants: This will prepare them in making good spending decisions in the future. The difference between wants and needs starts to become clear as children reach school age. By starting out early on this basic step you will help your child learn that just because they want something does not mean they really need the item in question.

We all want a lot for Christmas, especially the kids. This is the right time to show them the difference between needs and wants and why we should prioritize needs.

Setting goals: Young or old, people rarely reach goals they have not set. It has been said many times by many people that nobody plans to fail, but many fail to plan. This basic rule of thumb applies to children as well as to adults. It starts by setting a goal and then developing a plan to reach that goal whether the goal is buying a car or a new iPod.

Either way, once the desired item has been identified, you can put a price tag on the impending acquisition and set a time frame for achieving the goal. Next, it is time to come up with a plan to get the cash. While the goal may be small, at least from an adult’s perspective, the strategy to achieve it works the same way it would for an adult.  Such goal-setting helps children learn to become responsible for themselves.

You can teach your kids to set goals with the New Year resolutions. Even if you don’t believe in resolutions, do not let them be skeptical towards resolutions. Let them think of it as goal setting and hold them accountable to their goals. Make sure they set clear and realistic goals then guide them as they formulate a plan.

The value of saving versus spending: Explain and demonstrate the concept of earning interest income on savings. Consider opening for them a Savings Plan account which earns interest instead of just keeping a piggy bank at home. It would even be better if you match what they save. Topping up your child’s savings is an incentive while coaching them on the importance of saving. Beginning the regular savings habit early is one of the keys to creating a savings culture. Teaching them to prioritize savings over spending will help them avoid debt traps in the future. Speaking of debt…

Debt:  We all hope our children never find themselves in deep in debt, but most will experience it in some manner, whether it is a mobile loan or a HELB loan. It is important, then, to help them understand how to approach debt because after all, not all debt is created equal. Alert children to the dangers of unnecessary borrowing and paying interest and you can even charge interest on small loans you make to them so they will learn quickly how expensive it is to rent money.

Conclusion

Money gives people, both young and old, decision-making opportunities. Educating, motivating, and empowering children to become regular savers and investors will enable them to keep more of the money they earn and do more with the money they spend. Everyday spending decisions can have a far more negative impact on children’s financial futures than any investment decisions they may ever make. As soon as children can count, introduce them to money. Take an active role in providing them with information on money matters. Observation and repetition are two important ways children learn. Take time off this holiday season to reinforce these ideas. Happy holidays and happy teaching!

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