Teaching Financial Literacy to Kids Under the Age of 10
Thank you to my guest writer- Laura Pearson
Teaching children sound financial habits from a young age is important to prepare them for leading responsible and comfortable lives once they reach adulthood. As reported by Freedom Sprout, schools are infamous for overlooking the need to teach financial literacy and passing on the responsibility on the shoulders of parents. In this article by Family Factor, we explore numerous ways parents can make their children financially literate.
Teach Them to Track Money
Provide your child with various avenues to earn money, this can include allowances and pay for completing household chores. As they start earning, help them in keeping a track of income and expenses.
An effective method is teaching them how to create a simple income statement. Take a page and divide it into two halves, namely income and expenses. Instruct your child to note all their earnings and expenses to the page as and when it happens. At the end of the month go through their statement and ask them how they felt about the decisions they made. Did they feel they needed more money? Did they regret making any expenses? Tracking expenses will make kids mindful of spending money, enabling them to make informed decisions in the future.
As a next step, ask your child to create a list of things they want to buy for the following week or month and their plans for affording it. A great way to test their decision-making skills is to go grocery shopping. At the store, observe how well they stick to the items on their list and prevent themselves from giving in to impulses to overspend.
Focus on Delayed Gratification
On the way back home from the store, your child would be thinking of things they weren’t able to buy. This could include a new action figure or an art set. The drive to attain these will motivate them to earn more from chores or restrict expenses. This process will teach them the valuable lesson of the need for delayed gratification i.e. resisting the temptation of immediate satisfaction in exchange for a better, long-lasting reward in the future. According to research, delayed gratification helps kids to develop better social skills and effectively handle stress, in addition to making sound financial decisions.
As the parent, you will play a big part in teaching your child delayed gratification. Instead of buying them toys or taking them to the amusement park each time they demand, use it as milestones they can achieve once they meet a threshold of time or money.
Go Beyond Cash
Teaching how to earn and save money will form the bedrock of your child’s financial education. But, strive to go beyond it and expose your child to other financial concepts, such as:
Investing: The simplest investment they can indulge in is depositing money into their savings account instead of their piggy bank. Use your bank statements to educate them on how they can earn interest on their money, simply by keeping it with the bank. The focus is to expose your child to the concept of making their money work for them.
Debt: It is a useful financial instrument to which your child will surely be exposed in the future. The key is to educate them about good and bad debt and how to manage it. If you’re looking to refinance your home, it can be a great example to teach your child about good debt.
In simple terms, refinancing means replacing your existing mortgage with a new one with lower monthly payments and favorable interest rates. Create a sheet with the definition of words such as assets, interest, mortgage, etc., and complement it with illustrative online videos of the same.
Unfortunately, these are important concepts that schools will never teach your child, putting them at a severe disadvantage once they become adults. However, the education you provide will widen their understanding of debt, allowing them to make wise financial decisions in the future.
As a parent, create a safe space for your kids to ask questions, make mistakes and take risks with money. Over time they will develop a strong understanding of finances and become competent in handling financial decisions.
I am a mother, not a wizard. I share what is hard, what is scary and what is real. The rest I leave to you.