Many adults go through a tough financial situation to learn the lessons on money management. It takes time to master budgeting and savings with a limited income every month. Therefore, it is always recommended to induce the habit of savings at an early age.
As a parent, it may feel intimidating for you to teach such a serious subject to a young kid. There is all sort of confusion about the right age, technique, and even the conversation starters.
In this blog, we have mentioned 8 tips to help parents teach their children about saving money.
Set Goals for Savings
A goal explains the reason for the kids for the whole process of savings. You need to set a clear and precise goal to ensure the kids join the pursuit. The goal should be about something the kids want, not what you want them to have.
Let say the kids want to buy a £100 video game with a weekly allowance of £10. You will explain how much they need to save and the time it will take to achieve the goal. This will make them stay motivated throughout time.
Long term goals may not be suitable for the purpose as there is a risk of kids losing interest. You can buy them the stuff they want and take the money from their allowances. Take doorstep loans like provident to pay for the item your kids want from their savings.
Explain Needs and Wants
Effective money management involves a clear understanding of the terms, “needs” and “wants”. You must teach your kid the difference between them to let them manage their expenses. The habit of overspending will be taken over by wise spending once they know the lesson on curbing “wants”.
Sit with them and enlist their expenses in the two abovementioned categories. It will be overwhelming and completely unnecessary for the kid to eliminate the wants from their allowances. Ask them to spend wisely and minimally on the non-essential items.
Give them Opportunity to Earn
The majority of the adults were unaware of the importance of money until they started earning it. The same may work for your kids as well. You can start paying them their allowances based on the chores they perform.
Give them the freedom to also work for other people. There are several harmless activities they can get involved in such as lawn mowing and working in a store. They will achieve financial freedom way early than you may have expected.
You can also invest in their skills to help them earn some more money. Apply for guaranteed loans for unemployed to pay for the equipment. They will repay the loan from their earnings, or you may help them now and then.
Teach Them Money Tracking
Tracking the expenses is critical when it comes to saving money. It is easier to control spending when you know where the money is going. You can ask your kid to write the expenses each day to get a better insight into the spending pattern.
Now, teach them how each spending affects their timeline to achieve the goal. They will understand the importance of adding each expense in the bigger picture. Also, the progress will be faster once they start tracking the expenses.
Set an Account for Savings
You cannot rely on the old school piggy bank to save a bigger amount of cash. Not only it has limited space, but also the easy accessibility creates temptation. Moreover, they may misplace or lost the piggy bank that will put all the efforts in vain.
Open a savings account for them and credit the savings each week or month. The money will be away from their reach; therefore, it will not be used for some needless purchase. Not to mention the tracking will be much easier and transparent with a savings account than a piggy bank.
The Money Talk
After a kid reaches a certain age, you must teach them the importance of investment and savings. There are numerous topics to cover to create an understanding of finances. It is always good to have some long-term goals even before the children graduate.
The discussion is not about a day or a week. You must have it every day or schedule it once a week. Understand how well they are taking the knowledge and whether they are implementing it in their daily life.
Incentivise Their Efforts
You can introduce a reward system with small tiers to motivate the kid for saving. The extra money will help the kids who are showing no interest in budgeting or saving money. Also, others will put extra effort to make more money.
There are multiple ways you can use the incentive system for kids. A meal at their favorite restaurant or outlet may work very well for some. While others can get motivated with some bonus cash with every quid they save.
Give them Space for Mistakes
As an adult, you have made several mistakes when it comes to financial decisions. The kids are bound to make some because of their limited intelligence about the subject. You should not scold them for mistakes.
Use it as a learning curve and teach them not to repeat the same mistakes. The whole motive of the exercise is to teach them money management with less distressing mistakes.
To sum up, teaching your kids money management will take time and patience. They will learn from their mistakes just like adults do. The knowledge will stay with them forever and help them make an important financial decisions later in their life.