Kids’ money habits are formed before the age of 7 – it’s never too early to start working on your child’s financial literacy since these skills will come in handy in the later stages of life. It goes without saying that you need to be a role model for the money lessons you teach them. If you’re frugal and pay attention to how you manage your money, it’s highly likely that the children will inherently pick up on these processes and start observing them as a part of their money-saving routine. Of course, these lessons need to be adapted to the age group of the child, so keep reading to find out what money activities can be interesting to children in various life stages.
During this age, children need to be aware of the fact that they can’t get everything they want immediately when they want it. The best way to learn important financial skills is through practice and exposing them to real-life situations where they can get invaluable hands-on experience. For instance, when you take them to a supermarket, they can learn how to efficiently grasp concepts of saving and spending. They need to learn to be patient and save money if they want to get their hands on the product they want. In other words, their saving skills will be highly influenced by their ability to delay gratification.
Talk them through the process – when they spend money it’s gone for good. When you’re waiting in line at a supermarket, explain what you are doing there and that all other people are waiting for their turn, too. If they start throwing tantrums, wait it out and explain what consequences it would lead to if you just walked out of the supermarket without waiting.
When you buy something, an ice cream or a candy, make sure that they have observed the process and saw that you exchanged goods, or in other words, had to give in order to get. Going to the store doesn’t necessarily mean that you’re getting something for them.
At this age, they’re old enough to get a small allowance and understand the concept of doing chores and getting money in exchange. For instance, they can be rewarded for cleaning up their toys, helping out around the house, or making a simple meal. If you help them, they need to know that they won’t be getting as much money as they would if they worked on their own. Furthermore, you can create three jars – each labeled “Saving,” “Spending” or “Sharing.” This way, the child can distribute the money according to his or her order of importance. The saving jar should include money that is meant to be spent on more expensive items, whereas sharing is for donating or helping a friend in need.
This is the right time for them to become a part of the financial decision-making process. Explain why you chose one product over another, help them see the importance of discounts and how it helps you save money and how to be more efficient when buying everyday staples (by making a grocery list).
Give your child a certain amount of money to spend while you’re at a supermarket, just for experimental purposes. The goal of this is to understand their decision-making process and how they will make choices. What will be their shopping priorities when they have 5 francs at their disposal? To make the process easier for them, ask important questions:
- How long will this product last?
- Is this something you really need?
- Can you imagine your day without it?
Setting short-term and long-term financial goals should be your teaching priority in this life stage. You can summarize interesting scientific research about saving money, explanations about concepts such as compound interest and encourage them to do compound interest calculations. Investing and generating passive income is something they can use to their advantage if they learn properly what to invest in with little money.
Talk in numbers instead of trying to explain abstract concepts that can bore your child to tears. If your child has a habit of spending money on snacks, it might be more productive to put that money away for something that they want to buy in the future (iPad, headphones, clothes).
Even though it might be difficult for them to wrap their head around the concept of finances, it’s important to start from scratch. Managing money the right way is hard even for adults, not to mention children. As we already mentioned, don’t wait too long to introduce concepts such as saving, spending, sharing with others… The sooner they learn, the more prepared they will feel when they come across tricky situations where they have to decide whether to spend, invest or skip shopping.