Teaching your children how to handle their finances is one of the greatest life skills that you can give them. Money and how you deal with it affects almost every aspect of your life, from where you live to the relationships you have with others. Good money management can mean a more secure future and a cheaper life overall, as those who are worse with their cash tend to have to pay more for things due to poor credit scores.
Giving your children a good base knowledge of how to deal with their cash to start off with could help them to avoid problem debts in the future, and although they’re still likely to make a few mistakes (no one is immune from this), they’re likely to learn from them better too.
Giving your children pocket money from a young age, and helping them understand how best to spend it, can be a good way to begin their financial education. Obviously the amount you give them and how complicated you make it should relate to their age, so keeping it simple while they’re very young and building up to teaching them about savings and interest is usually the best way. You could help them to understand that hard work means earnings by paying them a certain amount for doing chores or for achieving good grades.
Savings and interest
Becoming the ‘bank of mum and dad’ in the literal sense can prepare your children for life in the big bad world. Teaching ‘delayed gratification’, whereby they don’t get what they want straight away but learn to work and save for it, can really help them to understand the difference between the things they want in the heat of the moment and the things they actually want in the long term. Instilling this habit in them will also ensure that they don’t see high cost, short-term credit options as a first resort when they don’t have enough to pay for something they want.
Quite young children will be able to grasp the concept that if they leave their pocket money with mum or dad for a certain amount of time, they’ll get more money added onto it (just like a bank). You can help them to understand the benefits of this by showing them which toys they can afford to buy if they wait longer. This will teach patience and will help them to realise the value in their decisions.
The real cost of things
As children get older, it’s important to help them realise what things really cost in relation to stuff they can understand. For example, you could tell them how many weeks’ worth of pocket money it would take to pay the electricity bill for a month. This should help with getting them to turn things off when they leave the room! It’s also useful for when they need to get out on their own and start paying for more things themselves.