Financial literacy for kids
How importance is financial literacy in this world? Given that the world runs on finance and being successful in life also rests on how you manage your money, I would say its pretty darn important. Financial understanding and literacy for kids becomes even more vital when our education system is totally oblivious to teaching it and consider to offer something only once our kids are at college level. As I recall, growing up one thing that I would hear from my parents was “money doesn’t grow on trees” and the lessons like sermons that came with it.
Even though I detested hearing that, the principles have stuck with me through the ages. Now, I’m a father myself, and while my daughter is still fairly young, I believe that financial literacy is best when started early. Below is the plan of action to be implemented as she grows up:
At age 3, introduce the concept of Money and its exchange for goods.
Whenever kids begin to learn counting, that is precisely the time they can be introduced with the concept of money. There are s o many board games out there which can help kids to understand how to count and sort money. As most of the coins have number on top, they can also reinforce their learning in school and connect that with counting coins and money. Another activity that further aides the understanding is to set up mock stores where they can count coins on their own and are given certain candies in exchange. This basic principle of commerce lays the foundation of all the similar future transactions.
The vital aspect here is make kids realize that one has to pay money to buy goods of any kind. It could be candies, toys or some fancy clothes.
At age 5, explain them the value of money
According to researchers at the University of Cambridge, at this age kids begin to understand the actual value of money and what their parents do to earn money which can then further be spent on all sorts of goods. If there is any fancy toys the kids want or wish for, make them understand the money that would be spent to buy it. You can also up the level of mock stores, this time try and do more transactions with some maths involved.
As fathers, you can also add the concept of allowance for the child. In fact research suggests children who receive allowance are more sophisticated about money than those who don’t. This also gives a chance to introduce to them the concept of saving/investing or donating. If saving is always what’s expected of kids, it will become second nature.
At age 7 – show them the difference between needs and wants
At this age, the kids can differentiate various values of money and can also recognize different denominations of notes and coins and their buying power. You can now give them a small amount and let them do an actual transaction at your regular store. This can reinforce the earlier concepts and that money in exchange of good is given permanently.
This is also a good time to teach them about limits on spending. Let them know that as a family, you set limits on daily expenses so you can save money and go on a vacation of their choice. As they grow, allocate a savings account to em or a saving piggy bank at home. This can be goal oriented with some toy or a outing attached to it. As a parent you can go through their savings weekly and discuss about how much have they saved and how much more do they need to match up to the set goal.
At age 9- they can learn about saving and spending
This is a good time to give them more information about saving, spending and investment. Of the collected money, teach them how they can set a specific percentage of money to spend, save and also investment. Also speak to them about brands you interact with daily while you are with your kids. It can be a big grocery retailer or some fast food chain. Tel them how these businesses were able to grow this big and why its essential to focus on your goals and spend money on things that really matter.
This is also the time to have them present on larger financial decisions. For instance have them present when you are budgeting for the vacation for to the vacations you are planning and how they the saving/spending can enable them to have things like these. They can also be part of the weekly grocery shopping so they understand the recursing expenses of a household. It’s about being aware of where your money is going so that you choose to put it towards the things that you care about most.
At age 12, kids can learn about smart spending and deceptive marketing
Teach them how to make buying decisions smartly. For instance, have them compare various buying options for the same material and where they are able to get a better deal. Introduce them to coupons/discounts/offers so they know what they mean and how they help. Once they make a decision , listen to their understanding on that very choice. Kid swill also be exposed to lot of expensive and branded goods. Follow your money management rules here so thee kids understand that they need to save more to attain a particular expensive item.
This is also a good time to introduce them to to advertisement and why they keep seeing them on television or newspaper. Tel them about tactics being used by the brands or social media players to lure consumers to buy stuff they do not really need. Break down the myths of the false promises that advertisement make around looking good, looking slim or even attain new friends and confidence , all with buying a new product.
As they attain teenage-dom, there will be separate challenges from money management perspective, which we will cover in an another article.
Lastly, teach kids that money is just a tool that is used to attain a goal and focus on the positives. Introduce them various other means of finding gratification. For instance, how going to a beach with a family or participating in a new experience has more excitement and a chance to create memories then to buy an expensive toy or a product.
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