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How to Cultivating Healthy Financial Literacy for Kids?

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“I wish I knew about this earlier. Why are we not taught this at school?”

Whenever I discuss financial planning and other sub-topics with clients and prospects, this is the most common thing I hear. 

Have you ever thought about how great it’d be if good money management skills are nurtured in our young ones? And how it’d be even better if we’re prepared to face the challenges in handling money from young? 

One of the best skills that parents can teach children from a young age is smart money habits. It’s important to impart good knowledge and attitude in handling money during the early years as it’ll shape their attitude towards money as adults.

Undeniably, this will largely be influenced by parents, peers as well as the media. If their foundation is strong, they’ll be able to rationalise the idea of money and become financially savvy in the future once they become adults.

However, it’s getting tougher to teach kids about the value of money since we’re firmly in the cashless era now. More and more people are no longer used to paying for things in cash, with more online transactions and card payments used.

Thus, kids do not see physical money transactions when their parents and people around them purchase goods and services. In addition, with the easy availability of credit today, the need to be able to manage money is even more important.

So how can we start teaching our kids about good money management?

1. Start Them Young

Parents can teach their kids from as early as three years old. Kids at this young age learn through observations so for a start, parents can teach the concept of money by exchanging it for food or toys, which is likely to be their primary interest at such an age.

2. Value of Money

For kindergarteners and school-going children, you can start to teach them about the value of money. This is to prepare them since they will need to purchase their own food when at school. At this age, parents must be more involved by instilling confidence in their kids. 

For instance, get your kids to approach the cashier and pay when making purchases, while you observe.

To assist when they’re paying to ensure that they can calculate the money to give and balance to receive.

Provide them with a fixed allowance and rationalise with them by suggesting substitutes if the item they choose is more than what’s budgeted. As a result, you’re also teaching them that not everything can be purchased, and we should spend within our means.

3. Include Kids in Conversations

When your children are in their teenage years, do include them in conversations when making money decisions.

You may ask for their opinions and discuss the advantages and disadvantages, repercussions, and rationalisation behind making decisions with regards to financial decisions like buying a car, a television, a phone etc. 

You can also discuss with them their aspirations for college and the cost it entails. This is important as they will learn that it’s okay and safe to talk about money with someone that they trust i.e. family members.

In addition, they will feel involved and should develop a sense of responsibility towards money as their opinion is heard.

As a result, they’ll have more understanding and familiarity about how money works and how better to manage debts.

4. The 3 Jars System

Parents should provide a consistent allowance to school going kids so they can practice handling money and learn how to manage their allowance.

One of the ways to inculcate a healthy financial mindset is to set up jars that signify a percentage of their money eg. 70% for spending, 20% for savings and 10% for charity or donation. 

 

At the end of each quarter, bring your kids to the bank to save the money accumulated and bring them to the charity of their choice to share some of their savings.

Consequently, you are teaching your kids about sharing with the less fortunate, how to save for their future, and budgeting for spending on what they need and want.

5. Paint the Picture that Things Can Go Wrong, Sometimes

Kids should know that sometimes, things will not be in our favour and it’s not always rainbows and butterflies.

Parents may share with their kids if they’re facing money difficulties and some compromises or sacrifices need to be made by the family. At times like this, where the economy is not as good, most people face pay cuts, unpaid salaries, and even retrenchment. 

 

 

 

Thus, it is best to layout the expenses that can be dropped temporarily, for example, extra classes like piano, art, taekwondo, swimming etc.

Do involve the kids in the discussion where some expenses need to be cut off as this will affect them, physically and mentally. Explain to them what needs to be prioritised for the time being.

In this way, you also teach them that when things don’t go your way, you’ll need to have a mitigation plan in place without sacrificing what truly matters.

6. Be a good example

Parents should always portray a good attitude towards money in front of children. Avoid quarrelling about money due to overwhelming debts or spending lavishly above your means.

Talk about money from positive angles and paint money as a tool that can help us achieve what we desire eg. education in the university of choice, to live comfortably within our means, and the freedom to work towards what we want to acquire with peace of mind. 

Children learn about money from observing you. Thus, parents need to learn how to speak the right money language and develop the right money attitude and skills.

Children will absorb these money habits from their observation and listening while growing up.

 

Your beliefs become your thoughts,

Your thoughts become your words,

Your words become your actions,

Your actions become your habits,

Your habits become your values,

Your values become your destiny.

Famous quote from Mahatma Gandhi

Kids that are taught good money management skills will have a better chance of making sound financial decisions and not getting into money troubles when becoming adults.

They’ll also be better prepared to face any challenges in the future.

As parents, we should discuss openly with kids and share our financial mistakes so that they won’t repeat them in the future (touch wood!).

Nonetheless, in order to cultivate a healthy financial mindset in our children, we should also equip ourselves with the right skills, knowledge and good money management!

 

 

 

About the Author 

Fateen Binti Rosli (IFP) is a Licensed Financial Planner. Her expertise is in holistic financial planning that includes health care planning, children education planning, retirement planning, wealth accumulation and cash flow management. She can be contacted at fateen@wealthvantage.com.my

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