How to impart financial wisdom to the next generation

18 June 2021 | Columns

Financial confidence is developed at a young age – here’s how you can help.

One of the best gifts parents or guardians can give their children is an understanding of money. How to earn it, value it, save it and spend it (wisely).

“Without a working knowledge of money, it is extraordinarily difficult to do well in life,” says Sam X Renick, co-creator of Sammy Rabbit, in an article for Forbes. “Money is central to transacting life, day-in and day-out. Where we live, what we eat, the clothes we wear, the car we drive, health care, education, child-rearing, gift giving, vacations, entertainment, heat, air-conditioning, insurance—you name it, money is involved.”

Here are three ways to help shape children’s financial literacy:

1. Teach them the importance of earning money

Whether it’s setting up an outdoor bake sale in your neighbourhood park, or rewarding your kids financially for completing certain chores (feeding the pets, hanging up the washing and the like), teaching them how to earn money – and why it’s important to be able to earn an income – is powerful.

2. Teach them how to budget and save

Learning how to manage funds once you have earned them is a fundamental part of financial literacy. Sit down with your kids and ask them about the things they’ll need (want) money for that month – it could be tuck shop money once a week, buying a new book and going on a fun outing; then explain to them how they need to use the money they have earned to budget for the things they want in the month. If they don’t have enough for everything, they must decide what they’ll rather have the following month. If something they want is really pricey – like a bicycle or a Lego set – explain to them that they’ll need to save, and how to do so. This is also a very necessary lesson in delayed gratification – that saving for something worthwhile is worth it.

3. Teach them about credit and debt

Children pick up on everything – and they have no doubt seen you swiping your ‘magic’ card while out at the shops. It’s important for you to tell them how a bank card works, and even more significantly, what is credit, what you use it for, and how – if not used correctly – it can leave you in a really bad spot (debt).