20 Jul Kids and Money
How to teach Financial Literacy to children.
“My dad was my greatest inspiration,” Warren Buffett, an American investor, business tycoon, and philanthropist, said in an interview with CNBC back in 2013. “What I learned at an early age from him was to have the right habits early. Savings was an important lesson he taught me.” When asked what he thinks is the biggest mistake parents make when teaching their kids about money, the billionaire said, “Sometimes parents wait until their kids are in their teens before they start talking about managing money — when they could be starting when their kids are in preschool.”
At The Thriving Group, we agree that young children can learn the basics of money, such as differentiating coins and understanding how to put some funds aside, which is why we include Financial Literacy as part of our Foundation Programmes for all age groups and have this subject as an additional programme where we go deeper into its teachings.
I believe there is no such thing as being too young to learn about financial literacy. You can start the fundamentals by as early as 2 years old and go up to 10 years old as they will be eager to learn and you still have influence over them. The earlier you start, the better, moreover, it’s the perfect time to prevent wrong beliefs or misconceptions about finances before they learn bad behaviours from their friends, social media, television, and other influential sources. After age 12, it becomes difficult to teach them, as they will be under peer influence and pressure and they may simply want something that their friends have. If the foundation is provided, they will be in a much better position to make choices.
Since our school systems aren’t giving our kids the financial education they need, it’s up to us, as parents, to take on this responsibility by teaching them this subjector trusting a source such as The Thriving Group to provide these crucial teachings. The truth is, your child’s financial education is only going to come from one of two places: either learning from their own mistakes (which can range from costly to devastating, depending on the lesson) or from you. Isn’t it in your best interest to take a proactive approach to helping your children navigate the financial waters, so you can set them up for a successful future (with the added benefit that they won’t become a financial burden on you or our society later in life)?
According to Forbes magazine, kids as young as three years old can understand what those pound signs stand for. Parents can play an important role in guiding the development of financial intelligence early on.
Here are a five basic money management concepts for children:
1. Understanding the concept of cash flow
Money coming in, money going out, and the remaining money at the end of a specific time period. I teach this to my 8 years old daughter over a one week period because not only can it be frustrating for kids to wait longer than that but also because I want to have the chance to teach and reinforce the concept often. Teaching children the relationship between earning, spending and saving will help them understand the value of money.
You will definitely want to do this long before they turn 18 and are inundated with enticing credit card offers as they head off to college!
2. Saving, Spending, and Giving
Teach your children the true value of money and how it is a tool to be used for different purposes. For example, you could use money jars, each with a purpose. Here at home we were creative with this one and my daughter made her own money box with different compartments for each purpose. It’s important to help your child using the money they receive or earn wisely, they should understand the need to set some money aside to save (for a goal), spend (on treats) and share (give back). In our programmes for older children we add a fourth purpose, investment.
3. Not spending money they don’t have
Later on you can explain to them about debt and the difference between good debt and bad debt. At first, to make it easier, they should understand how important it is to only spend what they have.
4. Understanding the value of earning money by completing tasks
This one speaks for itself but here’s a tip I’ve found very helpful: try pinning chores next to envelopes of cash on a noticeboard or simply write the amount they will earn for each specific task. Children can then pick the tasks that offer them the best balance of work and reward.
5. Processing the concept of Price & Path
You can explain to your children that money can be used for other things right now, rather than saying “we can’t afford it”. You can also help your children earn money so they can buy it themselves. They could do odd jobs around the house to earn the money. It’s a great lesson in money math, delayed gratification, and the power of saving.
In the words of the famous financial expert and author, Robert Kiyosaki, ‘’Financial freedom is a mental, emotional, and educational process’’. As you know, money touches everything in our world — from eating, shopping, and traveling to buying a house, getting married and having children. Every single day, we are all faced with financial decisions, and they begin early in life.
Setting a healthy understanding of money from a young age is the key to building financial independence and freedom. At the Thriving Group we teach proven techniques for understanding how to manage money and also for motivating children and teenagers to grow their money – greatly contributing to accumulating future wealth.