Financial planning is a skill that one can learn gradually, and the sooner someone starts, the stronger their future. Childhood is the best phase of life to learn something new.
If you sow the right seed at the right time, the crop is sure to be as expected. Considering the demanding modern-day lifestyle, children should learn financial management.
Basics of saving, investment, and spending make them better people. There are a few ways that can help them realise their strengths and weaknesses.
Early age teachings make children wise people
The sooner you start teaching little humans about money management, the better they can achieve stability in their lives. With some simple and practical methods, you can make them learn so much about financial planning.
What you teach them today shapes their tomorrow. They will learn about saving in a piggy bank as a child. Gradually, they will also learn how to use those savings for an urgent need.
An early age foundation of financial concepts is vital to teach the kids precisely about money management skills. Whether it is about saving or finding the relevant loan lender or mutual fund option, all knowledge should be delivered systematically. Don’t forget to appreciate kids for every small target achievement. Also, train them to handle a financial failure while maintaining normalcy.
Let us know about some lessons about finances that children should learn for a better future.
Teach them the importance of saving
Saving not only builds wealth but also patience and wisdom. Teach children about saving habits using small daily habits. Let them save for their books or toys; when they do so, a sense of achievement takes shape.
Besides this, you can also inspire them to first save for a purpose and then use it to purchase something useful. Use digital piggy banks or transparent jars to show them how their savings grow with time. Introduce the concept of compound interest, explaining that their money earns interest for them.
Let them realise the value of money
Children should know that money cannot be available whenever they want it. Money is something that one needs to earn through effort and hard work. This is how they will understand how their parents are earning it and what efforts and energy they invest to make life comfortable.
Connect money with pocket money that children can earn when they complete simple tasks. It can be anything, such as completing homework, cleaning their study table, or any other productive activity.
Also teach them the varied sources of money at the time of an emergency, such as personal loans. They don’t need to apply for any loan, but they should know how loans help when someone is in a financial fix. In the future, they may need to use bad credit loans on guaranteed approval with no guarantor from a direct lender. After all, maybe not now, but at some point in time, you need to tell them what a bad credit score is and how credit scores work.
Help them set short-term and long-term goals
Kids are always excited to learn new things, but they need a direction to avoid confusion. Hence, you need to help them set short-term and long-term goals, as that will help them understand how much to save for how long.
Teach them to set short-term goals such as saving for a school trip. In long-term goals, teach them how to manage money to buy a laptop in the coming year. This gradual but enriching process, where they achieve their goals with time, makes them a wise person.
With time, kids learn to make their own calculations. They know what they missed in achieving their last goal. Maybe they overspent on fast food, and now they have less money left to buy their favourite toy. Similarly, they get to know the strengths that inspire them to attain bigger goals next time.
Suggest ways to spend wisely and make choices
Spending rationally is the first step towards a safe future. Tell them to ask a few questions before they spend on any expense.
Inspire them to ask the following questions before spending –
- Do I really need to spend on this purpose?
- Is the purpose worthy?
- Is it a want or a basic need?
- Can I buy the same thing at a better or lower price?
- What if I don’t buy it right away or wait for a few days?
Such questions develop a rational attitude in children, and they learn to think clearly, avoiding impulsive behaviour.
Do they know the difference between need and want?
That is an extremely important realisation that children should get on time. Many times, parents experience high demands from their children for toys, new gadgets, weekend outings, etc. Stubborn children give a real task to their parents.
This is why children should learn good financial habits at the right time. They should know that demanding money for books can be right. But asking to buy toys and gadgets every now and then is not a need but just a desire.
A need should be fulfilled on time, but for a desire, they have to be patient or avoid it until surplus money is available. This can be better taught when they use their own pocket money, which has a limited amount. This will help them prioritize which things they need to buy first and which they can avoid for now.
Train them to make a budget
Budgeting gives insight into how a child wants to spend the available money for varied purposes. The process includes calculations, planning, patience, and rational conclusions.
Budgeting teaches logical distribution of funds. such as 50/30/20 rule. In the case of a child, this distribution can be for relevant needs as mentioned below.
50% money for needs such as school books or projects, etc., 30% for wants such as snacks, toys, school trips, etc., 20% for savings or donations.
Every time they make a new budget, they know what they missed in the last budget. Also, this can provide the best circumstances to develop money management skills.
Introduce the basics of banking
Banking basics are important to establish the right foundation for financial planning. Once the kids are old enough to understand the basic banking terms, introduce them to the basics of banking.
Inspire them to learn about deposit, withdrawal, and interest. When they interact with banking activities in real life, they will gain valuable experience. Gradually, teach them to use banking apps for multiple purposes like saving, cheque scan, money transfer, investment in mutual funds, etc.
It is important to keep an eye on how they are using the banking activities. Also, make them aware of popular banking frauds. Initially, you can set a password and open the app when they want to make an activity. Also, teach them to make unbiased borrowing decisions. Explain the bank alternatives of borrowing funds, such as private loan lenders in the UK, for speedy fund transfer.
Conclusion
Straightforward lessons above about financial planning make children future-ready and confident about their decisions. As money is the driving force in the human world, everyone needs to learn the basics of how to use and spend money wisely.
Investment, budgeting, savings, expenses, crisis management, all demand certain skills. But the basic method is to learn self-discipline, for which the above ways will always work.