As adults, the way we deal and think
about money today is what we were taught at a much younger age. We all learned about money from our parents,
either directly or by observation.
Those
lessons influence our financial decisions our entire life, whether we are aware
of it or not. Therefore, it is crucial for us to teach our children good money
management skills to help them build better financial futures of their own.
Money management might sound like a big concept to a young child, but if it’s
broken down in a simple way, it can be learned at a very early age.
One way to teach children how to manage
money is by giving them their own and educating them about the optimal way to
use it.
As a money coach, the rule of thumb that
I recommend is to give your child a weekly allowance equivalent to his age. For
example, you could give your 5-year old child $5 each week.
What age is ideal to start? Between the
ages of 5-6 is a good time since your child is familiar with the numbers and
has acquired some basic arithmetic notions (simple addition and subtraction).
Also at that age, their purchase demands become more consistent, therefore it
is ideal to start setting limits on how many “wants” they can get.
It is also important to explain to your
child that, the same way adults have to work to earn money, he/she too needs to
do some “work” (meaning chores). Tying the money to work makes them realize
that money is not free, there’s an effort involved to receiving this money. Depending
on the kid’s age, house chores can vary from making their bed to cleaning up
their bedroom, helping with snow shoveling or helping younger siblings with
homework.
Once the child receives his allowance,
he needs to understand that it’s not all going to be spent on the first toy he
sees in the store. As a parent, it is essential to explain the concept of
delayed gratification. In simple terms, this could sound like “you could buy
that puzzle today, but if you really want that big truck you saw the other day,
you will need to save your money for 4 more weeks”.
In general, there are 3 areas towards
which the allowance should go. An easy way to remember them is the abbreviation
“3S”;
Save
some; By saving a portion of the allowance, the
child will learn that some items cost more and therefore, he needs to be more
patient before acquiring them. It also teaches the child to think and plan longer
term, and not just in terms of what he wants today.
Spend
some; Setting expectations for the spending
portion is crucial. You have to clearly pre-determine with your child what
expenses you expect him to cover with his allowance. Depending on their age, it
could be lunch money or afternoon treats; for teenagers, it could cover some of
their clothing or movie outings.
However, regardless of the child’s age, there should be a portion of
this “spending” money at the kids’ total discretion. This will teach them
decision making and will arm them with a sense of responsibility and
self-confidence.
Share
some; Even if it’s only a small amount, there
has to be a portion to share with the less fortunate. For example, the child
could accumulate those little sums over the course of the year and donate them
in a lump sum to a charitable organization (even $0.75 cents/week will amount
to $39/year). It is a valuable way for a parent to teach personal values
through money by showing their child how to share his good fortune.
Lastly, when children first start
receiving their allowance, they don’t have a clear concept of what it can buy
them. “Can $1 buy me a doll?” “Can $20 buy me an ice cream?” As adults, we deal with money every day and
we know what amount we approximately need to buy a certain item. That’s because
we are familiar with the concept of “purchasing power”. However, when we travel
to a foreign country and we start handling another currency, it takes us a few
days to adjust our thinking to the local economy. The same happens with a child
who has never managed money on his own. Children
need to gradually understand how much things cost. One way of doing this is to
show them the different price tags when you take them grocery shopping or to
the mall. Even if your child will not buy anything that day, he still needs to
understand how to compare prices and have an idea what his weekly allowance can
actually get him.
Guiding your child with his financial
decisions today is the best gift you can give him for his future financial
life. A strong basis is crucial to building a healthy relationship with money.
So remember, it is never too early to learn about managing money!
About the
Author;
Lama Farran is a personal finance
coach. She earned a Bachelor of Commerce and a Graduate Certificate in Finance
from McGill University, followed by a Master’s degree in International Accounting
and Finance from the London School of Economics in England. She has also
completed
a series of personal finance and
investment courses through the
Institute of Canadian Bankers.
Unlike a traditional financial
planner, she does not sell any financial product. Instead, she guides her
clients on their path to financial stability and empowers them with the
knowledge required to take control of their personal finances. Through
one-on-one coaching sessions, she uncovers their spending habits and
establishes realistic budgets that fit each client’s unique lifestyle.
For More information please visit;
www.maxworth.ca, on Facebook at;
www.facebook.com/MaxWorthMTL, or call Lama directly at (514) 717-1976
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