We love our children and want the very best for them. We do everything we can to set them up for a financially secure, successful and happy future. We plan to leave them a nest egg and invest in their education, sending them to the best schools. We encourage their interests in music, art and sports with all the lessons and equipment needed. However, many neglect to give their children a financial education.
Financial literacy, like common sense, isn’t very common. Only 24% of Millennials in the United States demonstrate basic financial literacy1. The Malaysian statistic is not much better, with almost 70% of Malaysians in need of financial literacy support.2 Parents have essential roles to play in helping children build their financial skills as 75% of UK teens say their financial knowledge and skills come from their parents3.
You may be putting off your children’s financial education until they are older and can understand better. However, behavioural researchers from Cambridge University encourage parents to start teaching children about money from as young as 3!4 This is because many financial habits are set by 7 years of age.5
However, not to worry if you have not started yet. You now have the perfect opportunity as the country is under lockdown and schools are closed. You will be able to spend more time with your children to teach them financial skills and other life skills not taught in school.
Teaching your children financial literacy
The most important thing to impress on children is that money needs
to be earned before being saved, spent or given away for charity.
Earning
Where does the money come from? Definitely not from trees. Children need to understand that money is a finite resource that needs to be earned. But how can your children earn money?
Their initial “earnings” can be an allowance or pocket money. This allowance should not have strings attached to it as it is meant to be a learning tool, the same way musical instruments are required for learning music. This basic allowance enables children to start making money decisions. It will get them familiar with the concept of a budget based on saving, spending, and giving.
On top of the allowance, children can earn extra money through extra effort. They can choose to do extra chores. Or they can earn “performance bonuses” when they do well at their “job”, which is studying. Parents can map out a reward plan for achieving certain grades, taking on activities like public speaking, winning a sports tournament or other goals.
Now that children have money, what should they do with it? Parents should introduce the concept of saving, spending and giving. Give them 3 clear jars for each category. Children need visual cues, so transparent jars are helpful as children can literally watch their money grow.