How Can You Get Your Kids Started on Money Management (2018 Update)
KEYWORD PHRASE: Money management for kids
Not everyone is good with the way they manage money. You notice full-grown adults spending way more money than they make and you say to yourself “Boy, where’s the common sense?” It’s simply unfortunate. Having said that, have you wondered why some people consistently keep finding themselves in financially awkward positions? It is because no school or institution teaches money management in class. Since our education system fails to provide such practical knowledge, it is now up to proactive parents to ensure that their kids learn one of the most practical lessons in life – the art of money management.
We, as adults, are familiar with the concept of ‘savings’ and eventual earning of ‘interest’ by way of savings. How are you going to educate your kid about such concepts without twisting their brain in a knot? Let us revisit this celebrated Stanford Marshmallow Experiment for some help. This experiment is an excellent means to educate your kid about the power of delayed gratification. Here’s how it goes:
The tester offers a marshmallow to a young kid and tells them they can have another if they are capable of resisting the urge to eat the first marshmallow for a set duration of time. Those kids who are able to resist their urge are thus rewarded with another shortly after, and those who aren’t, simply miss out on the second marshmallow. Parents can look to adopt a similar approach whilst explaining the benefits of resisting the temptation of spending the money they get, and thus, introduce their kids to money management.
The Inevitable Conversation (Age 6-8)
At some stage, you’re going to have to raise the topic of money with kids. There are multiple ways you can go about it. The primary point of contention is making sure your kid understands the following points:
- Money is the price you pay for the products and services you intend to buy.
- Money is hardly an infinite resource. There is a limit to how much money you have at your disposal and the extent to which you can spend.
- The money you don’t spend is the money you can save.
Take your kid to the supermarket for best results. Give your kid five dollars and tell him you need to buy certain products. Intentionally make it hard for the kid to manage within those 5 dollars. The idea of this activity is to display the difficulties associated with keeping a budget. Forbes Finance listed this activity as a strategy when they mentioned the ways to teach kids about money.
The Monthly Allowance (Age 8-14)
Until a certain age, a kid doesn’t have the need to make monetary transactions on their own. That’s simply because they didn’t have such necessities. After a point in life, every kid starts to have their own set of personal expenses they must learn to deal with on their own. This is where we introduce your kid to the concept of a monthly allowance. If your kid rashly spends their money within the first half of their month, they struggle through the latter half. But more importantly, your kid learns self-discipline through budget-keeping. After all, life in Singapore is hardly cheap, budget-keeping is key to success as an adult. As a strategy to encourage savings within the monthly allowance, double the money they manage to save by the end of the month as a reward for their discipline.
Lastly, don’t remember to slowly increase the allowance as they get older. You see, even a thirteen-year-old has their affairs to look after!
The Monthly Saving (Age 10-14)
The entire premise of introducing your kid to the practical knowledge of money management is to make sure you manage to instil the habit of savings. When you recklessly gift your kid a 50 dollar gadget, there’s a high likelihood that your kid won’t appreciate its value. That’s simply because of the ease with that they got the gadget. The next time your kid demands an expensive gadget, try a different approach.
Divide the value of the toy into six smaller sums and accordingly inflate their monthly allowance to accommodate the cost of buying the gadget. Inform your young one how they can buy the gadget themselves if they save accordingly. After those six months have passed, ask your kid about their luck with the savings. If your young one has saved money proportionately, he or she should be able to purchase the gadget themselves. Allow them to hand over the money to the cashier themselves. The joy of receiving the gadget after a long wait will sufficiently teach them the essential lesson of money management. And more importantly, the gadget will remain valued, and cared for.
Money for Something – Better than Nothing (Age 15 and above)
As the final lesson of substance, it’s important for your kid to understand that money is not distributed for free, people earn it. This lesson will remain consistent for your kid well until their old age since that’s what life is about. How do you inculcate such a habit? By providing the monthly allowance only in exchange for household chores. This helps you achieve two things at once. You’re introducing your kid to the concept of ‘work for pay’, whilst preparing your kid for adulthood simultaneously. The money your child earns, yes, earns, will surely be valued highly because there is actual work that went into bringing it about. Much like hard-working adults value the money they earn. Not that it stops them from being careless – but then again, that’s simply a result of not having a proper lesson on money management as a kid.
The above-listed steps are sure to provide your kid with the foundation that they need in order to manage money better as an adult. After going through all these years of careful exposure to the importance of money management, you can be reasonably sure that nobody will refer to your kid with a remark such as this – “Boy, where’s the common sense?”. The common sense was successfully delivered long ago. And now it’s time to reap the interest.
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