As a parent, you instinctively want to protect your child from the burden that accompanies finances. You want to keep them out of money matters.
We understand you're intending well for your child. But this approach could land your child in super stressful and frustrating situations later in life.
So, it's best to opt for early financial exposure. It may as well be your smartest gift to your child. Why? Read on to find out.
Saving becomes a habit
Knowledge about debt, financial needs, and upcoming expenditures will motivate your child to get started early with savings. When you give them a monthly allowance, and it's upon them to get that new toy within their budget, they'll learn to do the necessary math and set aside a certain amount.
The habit of refraining from unnecessary expenditures until they meet their goals (despite having money at hand) will benefit them in the long run. By the time your child is paying their own rent, they won't find it difficult to go out with friends and come back home without being all broke. They will either have enough money saved to establish a balance, or they’ll learn to say no to things they can't currently afford.
It helps them understand you
Teenagers today often throw tantrums over material stuff. They want to buy expensive toys, clothes, and gadgets only because it's trending.
Turning them down without an explanation can build up frustration and hatred. They may end up becoming rebellious and develop unhealthy habits, such as stealing and sneaking in things from their friends without your permission.
So, it's best to educate your child about financial limitations. Let them know why you cannot afford a thing right now and reassure them that they can have it once you can afford it. It will help your child understand your refusal. It will also help them develop healthier habits like:
- Requesting instead of demanding
- Avoiding impulse buying
- Cooperating in times of need
- Responding patiently to difficult times
Awareness incites considerate behavior
Financial literacy can help your child develop a considerate behavior towards two entities:
- The provider (i.e., you)
- The underprivileged in the community
Knowing about the struggles of earning and budgeting, your child will avoid buying things they don’t need. It will help them realize that unplanned, desire-led expenditure leads to poverty. This, in turn, will also incite kindness towards the underprivileged in the community.
Plus, it will motivate your child to prioritize charity instead of discretionary expenses. In the long run, they'll become a resourceful and contributing member of society.
It instills a sense of responsibility in them
Monthly allowances grant some degree of financial independence to your child. Although the idea of financial independence at such a young age frightens many parents, it’s important to understand that this independence is necessary for making your child more responsible.
When your child is responsible for saving, managing, and fetching things on their own, they will create budgets, save, and strive to learn about money-making or money-saving methods that help them sustain themselves better. They wouldn't want to run out of money, stay in debt, or compromise. And so, they will strive to find ways to achieve financial stability.
However, do not give money to your child if they don’t have a goal in sight. Let them develop a purpose for the money they get and only then give them the money. Alternatively, you can have your child earn money through home chores. In this way, they will value their hard-earned assets and deal with them responsibly.
It helps them develop a strategic & practical approach
The liberty and responsibility that comes with having your own money inspire a practical approach. When your child learns to divide their budget into sections, spend need-based, and save for their wish-list, they no longer have impractical dreams leading their lives.
For example, a financially literate child will not expect to own a car by the age of 24 without having a plan in sight. They will break down their goal into smaller steps and slowly work their way to it.
Literacy empowers smart decisions
The Greenlight study revealed that 74 percent of teens don't feel confident about their financial education. Although they may be capable of wonders on their own, the lack of proper guidance makes them hesitant and doubtful. As a result, they end up making poor financial decisions, trusting others' suggestions over their own instincts.
You can save your child from falling into the same crowd by focusing on financial literacy. By giving your child financial freedom and incorporating inquiry based learning, you will help boost their self-esteem. As a result, they'll be able to take calculated financial risks and make smarter decisions in the future.