Growing up and learning the value of money can be difficult in this modern age – there are many complexities which children will find it difficult to get their heads around. Money can be so ‘virtual’ as a lot of spending is carried out online, and physical money only accounts for 8% of the world’s currency. So, a child may see you buy something online and then arrive in the post the next day. They may not understand that you have had to pay for that – it’s not as simple and magical as clicking a button (no matter how much Amazon wants us to feel like it is).
However, it is vital that children learn about spending, saving and earning from an early age, in age appropriate forms, so that they can be responsible spenders when they grow up.
This is referred to as financial literacy and is a trait that many parents are trying to strengthen in their children.
Parents.com says that you can even start teaching your children about money from the age of two! They say, “Young kids love to play shops, but an imaginary shop in the living room is more than just a fun way for your child to exercise his imagination. By exchanging play money for goods, your child begins to understand the basics of commerce.”
From age 6, your child might want to earn pocket money. This is the perfect time to teach them about spending and saving. From a young age they can aim to save up for something. This builds valuable life skills for the future. The sense of accomplishment really pays off!
For older children that want to learn more about financial literacy, Wonga have written extensively on financial literacy; highlighting four key areas, or pillars, which are crucial to understanding finances. This includes 1) budgeting 2) investing 3) debt and 4) saving. With a good understanding of each area, your children can learn the skills they need to be wise with their money from an early age.
Although you may not necessarily want your child to know about debt, it is an inevitable part of life when you are older if you take out a mortgage, have a credit card, overdraft or loan. Learning about interest rates, paying off debts and types of loans can be useful for children to know about. You don’t have to start off heavy, or lecture your child – short, quick chats that occur naturally are best.
You can also talk children through your own debt, tell them about your mortgage if you have one, and how you had to save for this. You may also want to tell them how much you repay each month. This can help them to put your own finances into perspective (i.e. you don’t have a money tree!)
To read more on topics like this, check out the lifestyle & goals category.