As parents, it’s only natural to dote on our children. But do you find yourself expressing your affection mainly through purchases at the toy or video game store? Obliging our kids’ every demand does more than just ‘spoil’ them. It also deprives them of the chance to learn a vital lesson: the value of money and how it should be managed.
A big part of our children’s upbringing is teaching them important life skills they will need to survive in the modern world. We give them an early start on taking care of themselves by having them help prepare their food, do the laundry or clean up around the house. We also encourage them to manage their time well, take on challenges and communicate confidently to prepare them for their life milestones ahead.
However, managing money is one area that is often ignored. Parents often want to shield their children from finances because they feel it’s too stressful, or they consider it a purely ‘adult’ concern. But this shouldn’t be the case. Childhood is the time when parents should introduce their children to important money management principles and techniques that will help them throughout their lives.
In fact, young adults who have had no exposure to any form of financial education are likely to make bad decisions later in life such as overspending, accumulating unnecessary debt, getting duped into buying ill-advised investment products, and so on. However, if we equip our children with critical financial skills and knowledge early in life, they will be more self-reliant and responsible in the future.
While financial education has traditionally not been a part of school curricula, change is already afoot. The UAE government recently introduced financial education in schools for students between the age of seven and 18. Moreover, some private sector initiatives are holding workshops to impart financial literacy among children and young adults. Even with these developments, the best financial education begins at home.
But what can you do as parents?
It’s important for parents to realise that we’re teaching our children about money management, whether we know it or not. Our children pick up all our financial behaviours, both good — like, sticking to a budget, cutting costs to save money — or bad — like making reckless purchases using a credit card. Because children closely observe everything parents do, it’s crucial to set a good example and manage money responsibly.
With a good foundation, there are a number of steps you can take to help your children develop financial skills that will allow them to better manage their money throughout their lives . One way you can boost your child’s money management skill is to give them an allowance of their own. Instead of paying for everything out of your own pocket or safekeeping the money your children collect through gifts from relatives, we should encourage our children to trust themselves to keep their money safe. Younger children can keep their money in piggy banks, envelopes or mini-wallets while older children can open a bank account where they can deposit money and learn how to make it grow. Children feel more confident about taking care of their money, which also gives them a sense of pride in the smart saving and spending decisions they make in the future.
Another financial concept parents should introduce early on is the difference between needs and wants. Children need to learn that not all desires are created equal. While some, like clean, well-fitting clothing, are necessary and thus can be categorised as ‘needs’, designer, brand-name items is a ‘want’. It should be stressed that ‘wants’ can only be satisfied after all ‘needs’ are met.
This brings us to the next essential money concept: the idea of spending consciously. Children need guidance about what to do with their money. Parents should encourage them to put aside their impulses and spend all of their money on ‘wants’. Talk to them regularly and repeatedly about the importance of saving and demonstrate how they can save small sums over a period of time to have enough for a bigger and more important expense. You can also show them how you save for big goals, like a family vacation so that they understand how each small bit builds up over time.
Another related idea is to challenge the notion that their parents are a source of endless money. Money is earned, and is limited at any given time. An effective way to emphasise the value of money is to make children work for their allowance. Assign them chores, and if they need more money than usual in a particular month, have them work for that too with extra chores. They’ll understand that they have to put in some effort in order to earn the good things in life.
Comparison shopping is another useful financial practice that can be taught to children early in life. When making a purchase, involve your children in the search for a good discount or sales offer across multiple stores to demonstrate how to use this skill. Then encourage them to do the same when they make their own purchases.
As they grow older, you can teach your children more complex concepts like interest rates. You can also introduce them to loans by allowing them to borrow money from you, but if they don’t pay you back on time, make sure they incur a penalty fee and pay you back extra.
Children with exposure to good money practices are more likely to enjoy monetary success later in life. All in all, it's never too late to begin talking to your children about money. Modelling financially responsible behaviour is half the job done for most parents and involving children in the buying and saving practices in the house will help them pick up helpful habits. By the time they leave for university, they will be able to make and manage their money efficiently and live a financially independent life.
You can get your children on track to developing financial acumen by getting them enrolled in the four-week Financial Literacy Bootcamp by the Kid’s Finance Initiative in Dubai, that Continental Group has partnered with. The course takes place on four consecutive Saturdays. To find out more, please email: firstname.lastname@example.org