A parent is also a child’s first teacher, showing them what they need to know about the world. An important part of this is taking them down the road of financial literacy. While some parents are apprehensive about discussing money matters with their kids, you must avoid falling into the same trap of minimal supervision.
As a general rule, it is better to err on the side of being open with your child about important issues. And when it comes to personal finance, it’s better to start them young than to let them carry harmful spending behaviours into their adult years. Here we walk you through the process of schooling your child in one of the cornerstones of personal finance: building their life savings.
1. It starts with a piggy bank
According to Kiplinger.com, your child can start picking up basic money lessons as early as the ages of 3 to 4. The trick is to introduce them to the concept of putting money away now to use for buying things later.
One classic approach you can use is giving your child his or her very own piggy bank. Allow them the freedom to choose one in a colour or design they like, then show them how they can use it to store coins and loose change. Counting coins is also a great activity to engage their budding math skills.
2. Fun and games
Another way to teach your child about money is through playtime. Start by getting your hands on “play money” either online or at your local toy store. Once your child has learned to identify the different denominations, they can incorporate play money into their usual games or role-playing activities.
For example, your child can practice using play money the next time they play House with their siblings or playmates. Kids can also set up a make-believe grocery store, where they can “sell” items, take turns playing shopkeeper, and craft their own pretend cash register out of recycled materials.
3. Practising for the real thing
As your child grows into their school years, they may start receiving real money either as gifts or from their daily allowance. Once they do, show them the merits of saving even a small amount for future use. Do they regularly receive birthday money from their grandparents? Encourage them to set aside as little as 10% of it before they splurge on expensive toys, snacks, clothes or gadgets.
Once they adopt this habit early and consistently, your child can watch as that modest 10% increases steadily over time. Through witnessing the fruits of their patience and discipline, your child can grow more confident in their ability to handle their savings responsibly.
4. Thinking and acting ahead
Of course, it’s not enough for your child to just sit back and watch as the money comes flowing in. He or she must also learn to take responsibility for their spending habits. A key concept here is building associations between their present actions and real-world consequences. If they receive a weekly allowance, they must learn to balance that amount for both school projects and movie dates with friends.
Another way to teach your child financial responsibility is to encourage them to save up for their own future goals. The goal can be something as practical as their college education, or as trendy as the latest iPhone. Recap your child’s lessons from when they kept their first piggy bank, then expand on that knowledge. Show them how to divide their regular allowance between several “piggy banks”: one for school, one for fun, one for that pair of limited-edition Nike sneakers, et cetera.
5. Opening a bank account
Once your child’s savings have increased to a respectable amount, they can graduate to more “adult” methods of money management by signing up for their first bank account. A good place to start would be your own local bank, where you can inquire about opening a savings deposit account for your child. Some banks offer account types designed specifically for kids or young people, though you may also opt for a regular account with a low maintaining balance and a good interest rate.
When choosing a bank alongside your child, you may be confronted with the choice of either a passbook or ATM account. Your best bet may vary depending on the bank’s terms and your own child’s personality. An ATM account wins in terms of convenience, while a passbook account discourages impulse spending. You may also explore other options such as savings bonds and long-term investment instruments.