Many parents delay teaching the value of money to their children because of one misconception: they believe kids have no business having money. This is a safe and reasonable idea, but it does not hold any importance when you consider the benefits of teaching children how to be money smart early on.
Parents try to instill the value of money to their children by giving them a children’s account. But while this is commendable, it isn’t enough. And it isn’t the best first step when instilling good financial values.
Here is a simple guide on how to go about this process.
Before anything else, before even giving them a children’s account or a savings account, introduce to your kids what money is. Start by giving them play money and then, later on, actual loose change and small bills. The point here is to give them the idea of what money should be and what it can do. Teach them that money is used to buy items from stores and other retail shops. If your kids are already in school, this should be easier since they already know physical equivalent of numbers.
After this, teach them that money has an actual value, and that this value will correspond to how much he can afford to buy. Young kids may not easily understand this, so before you consider giving your children pocket money or allowance, try to do this: give them a certain amount of money and take them to a store, like a candy shop or a toy store. Tell them they can buy anything from the store, as long as they can afford it. This is to test whether they have grasped the idea of money’s value.
If you think they’ve done this well, you can give them pocket money and monetary allowance.
Many parents make the mistake of giving their children a children’s account before the responsibility of having to spend money. And why is this a mistake? Simple, how do you expect them to value the funds in the children’s account if they don’t have first hand experience in spending the money?
Give your kids an allowance, but try to incorporate the allowance with a specific task or chore at home. For instance, they will receive a 50 dollar allowance if they clean their rooms and wash the dishes. This technique is twofold: it helps them learn that money is earned -- which is, of course, the case in adult life, and it prevents them from feeling entitled.
Of course, with this, you also need to teach your children how to budget their money. Give them tips on how they can stretch their money until the end of the week, or the month, depending on how you give out their allowance. As kids, they’re likely to spend impulsively. And while you’ll want to stop them, here’s a better idea, let them be impulsive. But make sure they pay for the consequences of their actions.
For instance, if your kid ends up spending most of his allowance midweek and asks you for more money, do not give him any more money. This will be a first hand lesson on why it is important to budget money. As an adult, you know how losing funds before the next payday can be tough. Kids need to learn this too.
In any case, if they have access to their children’s account at this point, try to reconsider. They might withdraw money from their account the moment they run out of money for their allowance. This makes your lessons counterintuitive.
Opening the children’s account
Once your kid has an idea of how important, and how hard it is to budget money, it’s time to open the children’s account.
First, encourage your child to save money from his allowance. At first, you may have to impose it. For instance, tell your child that he has to come up with the children’s account initial deposit requirement within three months, with savings from his allowance.
An important consideration is to make sure your kid is with you when you open the account. In case you open a current account or savings account that isn’t under his name. Many kids actually develop a fear or aversion towards banks. This is not surprising, since banks do have that air that’s intimidating. This allows you to teach your kid how to deposit money for his account and how to withdraw.
While you might be tempted to put the account under your name, it is best if the account is really under your kid’s name. This gives the kid a sense of accomplishment from having money on the bank. This will inspire your child to save more. It is, after all, his money, money that he can spend later on. You may want to limit his access to his money when your child is younger, but relinquish control slowly as he grows up.
For later life
Later on, when your child is old enough, try to provide your kid with more specific and mature monetary advice. Some financial materials may suggest that you encourage your son to get a part time job. But in Singapore, the chances for that happening may not be as high. Therefore, you have to substitute this by being more supportive and more encouraging. Give your kid access to his account, but make sure you check once in a while to see if the funds on the children’s account is increasing and not diminishing. You may think this a bit imposing, but it is necessary. When your child grows up, you’ll find this more difficult to do.
Starting your kids young will help them value money more. Those who do not start saving early tend to think that money is meant to be spent. After all, the next allowance or, worse, payday will come after a few days. More importantly, the point here is to teach your child how important it is to save and value money. The more they value money, the more likely they won’t end up in financial trouble when they grow up.