Teaching Children About Money
Answers to money questions that your child wants to know – even if he/she never asked…
Where does money come from?
How do banks work?
Why is saving important?
Why is budgeting important?
Kids... They Are Watching Us
There is never a moment when we are not role models for our children.
This applies to every aspect of life, including money management. Our attitude towards money, how we handle it, and the way we spend it, are “speaking” to our children about money and the role it has in our life.
Children are like sponges, they assimilate so much information from us even when we are not aware of it.
Our body language, phone conversations, comments and outbursts all leave some kind of impression on our children.
1. Where Does Money Come From?
It's not so simple for children to understand that money is a limited and hard-to-get resource. Here are some ideas on how to explain where money may come from.
- The typical source of money is a paycheck, which means that you need to have a job and work before you can get paid.
- A wonderful source of money, because you don't have to make much effort at all are gifts and inheritances. This is money that people give you because they love you, or at least really like you, like your grandparents.
- Depending on the family, children may get allowances as a weekly spending fund, or as remuneration for the chores they do. Allowances are the first paycheck in a child's life, and a great opportunity to learn about different ways to use money.
- Many people find second jobs to make some extra money, and young people do extra chores for family and neighbors and get paid for them, like washing cars, mowing lawns, and painting fences.
- A good way to make money is to sell things, which can help with de-clattering at the same time. There are all kind of things that can be sold - at a yard sale, online, or any other creative way - used things you don't need any more, things you made, and even your crafts or artwork.
- Some people get money from investments. Not all investments are able to make your money grow, when you get money from investments, it's called returns or interests. However, there is always a certain degree of risk connected with your investments, especially those with potential high returns.
- Investment risk means that if your money may grow, but there is the possibility your investment loses value and you end up with less money. Some investments are low or no risk, these usually offer the lowest returns.
Things You Can do With Money
SAVE = Put money aside for future use.
SPEND = Buy things that you need or want now.
INVEST = Use your money to make more money.
SHARE = Help others and give to charities.
Start Saving Early
2. How Do Banks Work?
A bank is a business that needs to make money to pay its employees and make a profit.
When you put your money in a bank account, the money does not sit there waiting for when you need it back.
You, as the depositing customer, may gain a small amount of money in return, as interest on your savings.
The bank puts your money to work by lending it to other people for a higher interest rate. When other people need money to make a big purchase, they may ask the bank for a loan or a mortgage. The bank lets them use your money and charges them an interest, which makes the bank profit.
No worries though, when you need your money back you'll have it. The bank always keeps a cash fund available.
3. Why Is It Important To Save?
Saving money is not easy, but it is well worth it.
Saving money means not spending all the money you have available, but keep some for the future.
The main purposes of saving are: A. being able to take care of emergencies, and B. take advantage of opportunities when they arise.
A. Using savings to take care of emergencies. An emergency is an unpredictable event that causes an expense, and usually requires to be solved as soon as possible.
You spent all your allowance on candies and new games. Let's pretend that your phone falls and stops working, and since it was your fault, your parent make you pay to fix it. You need $50 to fix it but you have no savings. You'll have to start saving your allowance until you have enough money. In the meantime... no phone.
B. Using savings to enjoy an opportunity.
An opportunity is an unexpected offer that is too good to give up.
A friend may ask you to go to your favorite entertainment park, but you have already spent all your money and can't afford the ticket. You have to say no, missing out on the opportunity - unless you borrow from him, and that would put you in debt.
Being in debt means that you have already spent money that you didn't have yet, and when that money comes along it's not yours anymore. You'll have to pay back the debt, leaving you with less cash available in the future.
The Power of Starting Saving Early
Age When Kid Starts Saving
Amount saved monthly
Total saved at 18yrs (no interest)
If you are saving for a specific item, such as a new computer or a puppy, put a picture of what you want in plain sight, and label your piggy banks. Every time you see it you’ll be reminded of your goal.
4. Why Is A Budget Important?
We all have things we want. Parents may want a new car; children may want a new bike, or new games.
A budget can help save enough money for the things we want to buy.
A budget is a tool for you to know how much money you get (income) and spend (expenses) each month, and helps you figure out how much you have left over each month, and how much you still need to save to reach your goals.
Families need to make sure they have enough money for regular bills - groceries, electricity, water, etc.
They also need to take care of emergencies and unexpected expenses, like a flat tire, a birthday invitation, a sick pet.
To figure out how to best use their money, most families do a budget, listing all money earned and money spent.
Children can do their own budget too, look at what they are currently spending and decide what they can cut, or if they need to do some extra chores to meet their goal.
Talk To Your Children About How You Manage Your Money
Teaching the value of money by example is a great way to go, but explaining why we handle it one way instead of another can make the message much more powerful.
Every time your child is bugging you to buy candies, toys, ice creams, and what not, is a great opportunity to enrich the “No” answer with a brief explanation of “why not”, besides the obvious because I said so.
You don’t need to be a financial expert, actually it’s better if you keep it simple, it will sound even more like an everyday essential knowledge.
Explain why you buy a certain item instead of a more expensive one, what would make you decide to go for the costlier, how you will be able to afford something in the future that you can’t buy now.
© 2012 Robie Benve