Teaching Young Kids About Money

There are so many crises in the world and most of them are inadvertently connected with money. Below are some recent ones that I happen to remember:

· The Mortgage Crisis

· The Student Loan Debt

· The Credit Card Debts

· The Non-Performing Loans

Of course, these are only some of the problems but their impact on our economy has been huge. This also affects the psychology of kids as they become uncertain about their financial future. So, as parents, it is our responsibility to help the next generation to not make the same mistakes as us.

My wife recently asked me, “Why our schools don’t teach kids about money; given how important it is to navigate life?”

And I answered, “If schools do not do that, then this responsibility is upon us as parents!”

Research by a team of financial experts says that children in the age group of three years also grasp concepts like spending and saving. The money habits in kids are formed by the

time they are 7 years of age.

So the inevitable question is – What should we as parents do to teach them about finance and money?

What I have learned from my experience is that the sooner we, as parents, start teaching our kids about money in our everyday moments, the better. I think we as parents are the best influencers on our children’s financial behaviors.

We can devise new ways to raise well-thought investors, consumers and savers. So I started picking up money lessons from my day to day life and also, created activities for kids of different age groups.

Of course, I got so much help online!

For Age 3-5

The major lesson here is that the parents should make the kids wait before buying something they want.

The parents should make the kids understand that they should save to buy something.

If I think of my own family, mostly when I take my kids to a store, I tell them that we are not here to buy anything for them. This gives them the idea that every time we go to the store, they will not end up with treats.

Here are a few activities for your toddlers:

· We can start right from the playground, if the child is waiting for their turn on swings, make them learn to wait.

· Make the kids label their money between Saving and Spending. Each time the child gets money, they should divide it equally.

· We can make the child create small goals, like for owning a toy. We can make them collect money for buying that particular toy. But we should keep the time frame small so the child doesn’t get frustrated

All these activities give your child a sense of how important it is to be patient and save.

For Age 6-10

At this age, kids need to learn to make choices about what to spend money on.

The parents should explain that money is limited. And it is wiser to make choices because once you spend money, it can’t be spent again. Activities like saving and spending should also be continuing at this age but we should also teach them to set goals. Kids also need to learn decision making about what to buy and what to leave.

Here are a few activities that we tried for this age group:

· We started involving our 6-year-old in our small financial decisions. We would also talk to her through decisions like buying staples at cheaper prices when available in bulk.

· We started taking our kids advice while buying stuff. Like which fruits to buy and how much each item costs.

· We started discussing how we reach a financial decision in front of them. We would ask aloud questions like:

a) Do we need this?

b) Can we borrow it?

c) Will, it cost less somewhere else?

d) Is this available on discount somewhere else?

For Age 11-13

The kids should learn to start saving as soon as possible. This will help their money grow in the compounded form.

The goals shifted from short term to long term at this point. We started to make them realize that saving for a longer duration helps to accumulate interest. The savings will be multiplied in this manner and this will help them save more money in future.

Here are a few activities that you can try for this age group:

· Have your child set a long-term goal for expensive stuff. They should also learn the art of trade-off which means they should give up something to buy something. This will help them with financial decision making.

· They can learn the art of sacrificing at this age by understanding that letting go is a good habit. So if they need an iPad, they will have to sacrifice the weekly outings with friends.

For Age 14-18

This is time for bigger decisions like comparing colleges. So kids should compare the costs of colleges. There are many types of tasks that help these kids understand the best college they should choose financially. They can look at college websites and compare other expenses besides the tuition fees. They also need to understand that college is a worthwhile investment and they should make the best decision after thorough thinking.

Here are a few activities that you can try for this age group:

· We know a couple with kids going to college. They started discussing college finding with the kids. What is the amount they have saved and what is the yearly contribution? They are very honest about their limitations with the kids and this helps. It’s a great activity that will help avoid unnecessary expectations of the kids from parents.

· There are many other ways of financing college apart from the parent's money. The kids might also need to sit and figure our colleges and universities that provide financial aid. Grants and scholarships mean that the kids will need to payback. So they should understand the types of loans and grants available.

· The child can use the college scorecard and compare the cost of each college. Their employment prospects and student loan debt. They need to understand how this will affect their lifestyle after graduation.

Estimating the financial aid of your kid will help assess their future in terms of loans, grants and scholarships. They will have the capacity to calculate their debts and payments. This is as important for loan repayment as it is for calculating their monthly or yearly expenses. It will help them in doing their taxes and planning their investments.

Adding to the above points it is also important that parents starting making their kids join work during college. It has been observed that students who work at least 15 hours a week get better grades as they are more engaged in student life.

It is easy to reach kids about money. All we need to do is change our day to day tasks into interesting money activities. You can also engage them in different games and activities involving money like Monopoly.

Whatever the way is, it will help them live a financially secure life and they will end up thanking us for teaching them!