3 Ways To Teach Your Kids How To Manage Money

Wednesday, June 29, 2016

3 Ways To Teach Your Kids How To Manage Money

There are a few ways to teach financial literacy to our kids, to ensure that they do not squander all our hard-earned money.
Tuition classes and enrichment course alone is never enough. Even if our children ace the PSLE and O levels, and move on to become an accountant or working in any of the finance line, having bad money management skills since young can really threaten their position at work, putting them in a bad place if retrenchment were to happen. Teaching our kids involves actions and great effort from the parents and we should not just rely on the school, money management is a lifestyle and not a course we can pass and forever have that skill. So here are few methods we can teach financial literacy to our kids:

Too much pocket money

Having more money is never a problem. Or that’s what we thought, giving our kids more money will never teach them how to manage money, they have to learn to save, do budgeting and think about investing.
When kids receive more money than they need, and they are allowed splurge on toys, games, Xbox, an iPhone, they are likely to grow up to have the desire tobuy bigger things, cars, more gadgets, branded bags. As long as they have enough money, they will not see the reason why not to buy them. They can only see what money can give them, but not how hard is it to earn it.
Our children will still have to eat in school, have some snacks during breaks but not so much that they can be chilling by Starbucks every day after school. We should give them enough for them to buy an extra snack or meal, so that they will have an option to save or spend that extra pocket money.'
Not only does this teach our kids the difficulty of saving money, but it also teaches them to make critical decisions, to evaluate if there is a need to buy that Kendama just because everyone has one. If they want something, they need to work for it, they need to save, and that one very important lesson they must learn!

Get the kids involved in the buying process

It is always a good idea to teach our kids to save up for what they want, however we are not so cruel to not buy anything for them ourselves, we will definitely be buying gifts and toys for the kid when they are younger. Every My Little Pony plush toy or Nerf gun we purchase is a good opportunity for our kids to practice budgeting, and understanding the value of money.
Do not simply pick up the toy and bring it straight to the cashier, instead, when we are at the toy store intending to get some toys for the kids, provide them with a budget. For example a budget of $40, bring the kid around and he/she will decide what to get, within the budget. The kid will have to decide and do some budgeting, to upgrade the Lego land set, or get 3 Ninja Turtles figurines.
Remember when we are younger, how we can never understand why can’t our parents just spend $1000 on the entire Lego City set?
By doing budgeting, kids can actually understand how much $40 is worth, they will get more cost conscious and will be more understanding when you tell them that their request is too expensive.

Start investing together with your kids

There is a better use of your kids’ ang pao money other than putting it in the bank. Letting it go in the bank is just a bad idea as its value will just erode due to inflation. Your kids will not be getting rich from ang pao money, unless your relatives are really generous with the $50 note, but that does not mean that we can’t teach them the idea of compound interest and simple investment.
We are talking about low risk investments such as purchasing Singapore Savings Bond, a few hundred dollars which is about one Chinese new year’s worth of ang pao money. Introduce to your kids the concept of compound interest, the idea of how we can make our money grow. Get them involved in tracking the progress of the investment, show them that the numbers are going up or down and that will be suffice.
Most of us do not know about the power of compounding until when we were older, not only is this knowledge intriguing for the kids, this will give them a head start in investing, way ahead of their peers.

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