Once a kid understands what to do with money given to him/her, that is the right time to start putting the child through financial literacy.
At a certain age, mostly when children hit the stage of puberty, they want to spend the money given to them by their parents on so many irrelevant things.
It is therefore parents’ duty to monitor how their kids spend their money to prevent them from poor spending habits.
Teaching your kids how to manage and spend money does not require a degree in finance, instead, financial literacy starts by teaching these five money lessons.
1. Tell them the difference between wants and needs
Financial literacy starts with one’s ability to differentiate between needs and wants, ie, what is necessary to have and what is nice to have.
Parents spend their money on such needs as food, shelter and medicine while wants as toys and vacations are spent money on only when the needs have been met.
So, as a parent, your child should be able to understand what is important to spend his money on, his basic understanding of the concept of needs and wants will always guide his spending.
2. Every purchase has an opportunity cost
Teach your children to know that money is finite and that any money spent on an item won’t be available to buy another item.
Children also need to know that money is finite and that means money spent on an item won’t be available to buy another item.
The best and easy way to teach this lesson is to involve your kids in everyday financial decisions. Take them to grocery stores, ask them to decide which one to buy two items with the explanation that money for both is not covered in the budget.
Putting them through a situation like this will teach them some lessons about opportunity cost and how to make a choice between two alternatives.
3. Teach them the repercussions of making a money mistake
Parents need to teach their kids the repercussion of making money mistakes
Parents may not want their children to make money mistakes, but hey, there is always a lesson or two to learn when we make one.
Give your child some pocket money and watch him/her make a poor decision with the money. However, seize the opportunity of his poor financial decision to teach him the repercussion of making a money mistake.
4. How to delay gratification
Delaying children’s gratification teaches them the necessary financial self-discipline.
One of the basic financial literacy every child should learn is how to delay gratification. Parents need to teach their kid this lesson because it creates the self-discipline needed to save money for retirement, college and other expenses in adulthood.
Also, parents can enforce this financial discipline by not buying every item their children request. This will go a long way to prevent them from impulsive buying.
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5. Teach them how money works in the real world
Teach children how money works to enable them understand how to manage it.
When it comes to money, children are said to lack perspective. For instance, a child might think N1000 is all the money in the world.
As a parent, you’ll need to teach your child how much money is needed to run a household and how to manage the money to actualise what he intends to achieve.