The importance of money management for kids
Financial literacy for kids is important to encourage children to build healthy financial habits and learn the importance of saving money. Keep reading for MyBudget director and founder Tammy Barton’s guide to money management for kids.
A real story on the importance of saving money
I was told this great story by a friend whose six-year-old son recently received a valuable lesson in money management for kids. At the start of the term, Harrison’s mum had charged his tuck shop card with enough money that he would be able to buy his lunch on Fridays. They had created a budget together by talking about what Harrison would like to order and what was acceptable. On the other days he would take a packed lunch.
Fridays would come around and mum would ask “How was your special lunch today?” and Harrison would excitedly describe what he ordered. After a month or so, however, mum noticed that Harrison’s responses had become less enthusiastic so she asked him why.
Sheepishly, he admitted that he had run his card down to zero by treating himself to a daily milk drink from the tuck shop. Fridays had gone from being his special lunch day to his no lunch day; something he kept secret from his mum and his teacher because he knew he’d broken the rules. Though mum’s heart was breaking, she explained to Harrison that she couldn’t recharge the card immediately because it wasn’t in the household budget. Harrison was back to packed lunches on Fridays for a few weeks and a valuable lesson on the importance of saving money was learned.
Sometimes the harshest truths offer the greatest lessons
It’s important we teach good money management for kids because it takes years of practice for skills to become habits. By exposing kids to money concepts early, they learn what works and what doesn’t.
Certainly, kids will make mistakes like Harrison—others will lose or misplace their money, some will be defrauded of it in the playground, some kids will buy silly stuff with it—but these are all important lessons about the value of money. Here are some tips for teaching financial literacy for kids.
1. Money management for kids tip #1: Introduce the concept of budgeting
Introducing money and budgeting skills for children can be the best way to teach them the importance of saving money.
Michael, one of MyBudget’s budgeting consultants, has this great advice:
“Over the course of the year, it’s likely that your kids will need some new clothes. If it’s an expense that’s going to be incurred regardless, why not put the power into the kids’ hands and let them spend it?”
“It’s a great way to teach the kids to control their spending by giving them a limit on what they can buy. Do they want those expensive jeans or could they settle for something cheaper and grab a few tops as well? By putting it in their control it helps them learn about the importance of saving money. It’s also important to give them cash; if you just put the purchases on credit, it makes it harder for them to understand the concept of running out of money.”
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With younger kids, start with smaller amounts of money and simple scenarios. For example, if you’re buying them a treat, such as an ice cream or lolly, rather than asking them what they want, give them a certain amount to spend and let them work out what they can afford. I remember some of my finest moments in childhood mathematics were at the local deli, working out what mixed lollies I could afford with a tiny handful of shrapnel.”
2. Money management for kids tip #2: The issue of pocket money for kids
It’s important for children to gain a sense of control over their own money at some point, but the amount must be appropriate to the child’s age and situation and what you can afford. Involve your children in your family budgeting process so they can see where the household money goes and how they fit in.
Too much pocket money for kids can place a child at risk from robbery or bullying and lead to a distorted impression of money’s value. By starting with small amounts when a child is old enough to understand money concepts, you’ll have established good money habits by the time they become teenagers and are entrusted with greater money responsibilities.
At what age to start providing pocket money for kids isn’t set in stone. Some families start giving their kids small amounts of pocket money when they’re old enough to begin contributing to household chores. An important point: Make sure you set rules about how much money can be carried at school or at the shops. This will also provide greater teaching on money management for kids too.
3. Money management for kids tip #3: Create good saving habits
You can teach the importance of saving in a variety of ways. Talk to your kids about minimising waste and finding ways to reduce household spending. Turn off lights, reduce water usage, close doors where the heating or cooling is on, don’t take one bite out of something and throw it away. These are all great ways of using real-word examples to teach financial literacy to kids.
Some parents make it mandatory for their kids to put a portion of their pocket money (or birthday/Christmas money etc) in the bank. Others offer their kids a saving incentive—for example, “For every dollar you put in the bank, we’ll match it, up to a maximum of $5 per week.”
In addition, teaching kids the value of putting money aside for charities is also an important lesson. We all our kids to treat others the way that they wish to be treated and instilling this sense of giving and generosity from a young age is a great way to start, especially if it’s a portion from their own hard-earned money.
You can also teach your children the importance of saving money by not buying them everything they ask for. Highlight the difference between wants and needs by paying for the things they need, but expecting them to make a contribution towards the things they want. This lesson in delayed satisfaction (making sacrifices to save for something you want) is one of the foundations of great money management for kids.
Looking for other ways of teaching money management for kids?
Otherwise, if you’re in need of help with budgeting yourself and want practical tips and guidance you can pass onto your kids, MyBudget’s caring budgeting specialists can show you how to save and help you identify gaps in your budget.
Call us today on 1300 300 922 or enquire online for a free consultation. We’re always here to help.
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