You send your child to school to get an education so that they can get a good job, but what happens when they get that job but have no idea how to manage their salary? Teaching your children about managing money is vital. Such skills help them to understand the difference between earning, spending and saving/investing, thus making them better money managers. They will be enabled to make better financial decisions as they journey into the financial challenges of adulthood.
Regardless of your own financial circumstances, you should aim to equip your child with the tools to manage and understand money. While money does not buy happiness, it should be considered that the world heavily revolves around its exchange and what money does or does not buy us, most definitely impacts our day to day lives.
Here are some quick tips that can be applied to teach children ranging from ages three (3) to eighteen (18) years, about finances.
3-6 year olds
Use a clear piggy bank
Using a clear savings jar will allow your child to visually see their money growing. Yesterday they had five dollars and next week they have twenty. When more money is added to the piggy bank, talk to them about it and make a big deal about their savings increasing!
Lead by example
According to a study by the University of Cambridge, money habits are formed in children by the time they are only seven years old. Anyone with children knows that they pick up on everything! They watch and absorb. Set a healthy example for these little sponges and they’ll be much more likely to follow your positive example when the time comes.
Show them that stuff costs money
Simply telling children isn’t enough. Do more than just say, “That toy costs $20.” Actually have them take the money out of their piggy bank, go to the store, and physically hand the notes to the cashier. This simple action will be more impactful than a five minute lecture.
6-12 year olds
Give commissions, not allowances
As long as you are providing your child’s needs you don’t have to simply give them money for their wants. Rather, pay them a commission. Whether that’s based on chores like cleaning their room or washing the car, or that they earn $100 for every A+ they bring home. This concept helps your child understand that money is not simply given, but rather it is earned.
Show opportunity cost
Around this age range is when a child is able to weigh decisions and comprehend potential outcomes. Start presenting them with decisions like, “If you buy this game, then you won’t have enough money to buy that pair of sneakers.”
Avoid impulse purchases
“Daddyyyyy look at this! Can we buy it please?” Sounds familiar right? This age group, especially when it isn’t their money, really knows how to capitalize on impulse purchases.
This is where you let them know that they are more than welcome to use their hard-earned commission to purchase that item. But, encourage them to wait at least a day before purchasing, especially items over a particular amount. If there is something else your child has been wanting or saving up for, this is when you also show them the opportunity cost of making this purchase now. “Ok Liam, you can buy this skateboard, but that would mean you would have to wash the car 7 more times to earn this amount of money again before you have enough for the Xbox you’ve been saving for.”
12-18 year olds
Have them open a bank account
Give your teen the responsibility of their own account. If there are any age requirements, let it be joint if necessary, however, let them oversee. This takes money management to the next level and will help prepare them for running a much larger account in the future. Open a savings/investment account as well as a designated spending account with a debit card. Use it as an opportunity to teach your teen about fees, budgeting, standing orders and other important financial basics.
Teach them the danger of credit cards
If your son or daughter has a job, once they turn 18, they may be eligible for a credit card. Take the time to teach them the possible dangers of debt, so that it is not misused. Credit cards aren’t bad when used correctly. Enforce that unlike debit cards, money won’t be taken directly from their account, essentially, they’re taking out a loan with each purchase. Drill into them that said loan needs to be prepaid, and the longer it takes to be repaid the more it will cost them. Make certain they understand interest rates, late fees, spending limits and how to set up automatic payments. When using and paying your own credit card, use it as a teachable moment.
Introduce them to the magic of compound interest.
I know what you’re thinking. You can barely get your teen to clean their bedroom, how in the world are you supposed to get them interested in investments. Show them other success stories of teenagers who have had success from investing early on. Make it relatable. Don’t just tell them it’s good to invest, show them actual figures. The earlier your teen can get started investing, the better. Compound interest is a beautiful thing! Introducing your child to this at an early age, will give them a head start on preparing for their future. Have your teen check out the online game “Moneytopia”. It’s an immersive game that helps them learn more about managing money while having fun!
If you want your children to know how to successfully manage money it is going to take an intentional effort on your part. Take the time today, their tomorrow will be worth it.
Check out the following
Explore these UTC accounts for your young investor:
- Children’s Investment Starter Plan (CISP)
- Student Investment & Protection Plan (SIPP)
- TT$ Income Fund
Did you know that UTC offers a SEA Scholarship Programme:
Moneytopia is a great game for your teens to learn about money management