A recent study by the World Economic Forum concluded that children develop spending and savings habits by the age of 5. How can we teach our children good habits with money at such a young age to set them on the right path for the rest of their lives?
Here are some tips on developing healthy habits with children:
- Start small and keep it visible. Having a clear jar rather than a piggy bank helps children to see their coins and notes accumulate. Starting small with loose change and adding coins lets them see their savings grow. Perhaps they could have two jars, one for silver change and one for copper, which will teach them the value of different coins and how quickly they add up.
- Encourage children to save any money they receive for their birthday or Christmas from relatives.
- Teach them the value of hard work. As a parent, you could set them tasks and chores and let them be rewarded for their effort.
- Let them set their own goals. What are they saving for? It could be for Christmas to buy their family nice gifts of perhaps for that Lego set that they always wanted. Setting goals and working towards them will set them on the right path for later life.
- Let them wait for their rewards. Perhaps you will recall the famous marshmallow experiment led by Stanford University, where children as young as 4 were offered a marshmallow now or two if they could hold out for 15 mins? The idea was to explore delayed gratification and to explore resisting temptation. Parents can help children by teaching them that if they really want something they need to save for it rather than having it given to them immediately.
- Play games and have fun! When our children were little, we made a cardboard stall and played shopping games with fake notes and coins. Whilst this was great fun, this also taught them about adding, subtracting, spending and hopefully gave valuable lessons in how money is exchanged.
- Perhaps the most import lesson of all is for parents and influential adults to demonstrate good financial behaviours. Children are metaphorical sponges and will absorb all those behaviours demonstrated by their elders, so it is important that good financial habits are displayed on a daily basis. So, avoid that impulse purchase (in front of the kids!).
As children get older, give them responsibility over their money once they are old enough to open an account. Let them create a budget to let them see how their chores and their first part time job can lead to attaining that goal. Teach them how to use ATM and debit cards and model good financial habits.
Perhaps you can take them shopping and demonstrate how to use a shopping budget, making positive choices and seeking discounts. Whilst in the store, check out the costs of products, the offers that are too good to be true. Most supermarkets will display the unit cost (per gram or litre) so you can work out with your child, whether that two-for-one offer is really worthwhile, or whether buying the next size up is better value for money.
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The information contained within this article is for information only purposes and does not constitute financial advice. The purpose of this article is to provide technical and general guidance and should not be interpreted as a personal recommendation or advice. Information within this article is based on our current understanding of taxation and can be subject to change in future.