Financial literacy is the knowledge, understanding and application of various financial skills. It includes efficiency in personal financial management, budgeting, and investing.
Although it is a lifelong learning journey, teaching your children about financial tools and skills from a young age will help them avoid most money mistakes.
Below are some important financial lessons to teach your children.
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The use of money and its different form
When you make a purchase using cash, credit card or debit card, explain to your children why you need to pay for things purchased.
Watching you buy something would not explain to them the concept of money.
Let them know the difference between paying in cash and using credit or debit cards.
Bank and its importance
Take them along to a bank or Automated Teller Machine (ATM) whenever you need to withdraw or deposit.
Tell them why you use a bank and the different types of banks. If you are catching a cheque, educate them on why the bank will give you money in exchange for the paper.
Explain to them the bank in charge of printing the denomination and why they cannot just print and share it with everyone.
Reinforce the importance of hard work and why they need to work to earn money someday.
Teach them the importance of savings
Your kids will, most of the time, see you spending money. If not thought otherwise, they might think money is majorly meant to be spent.
Instill in them the habit of savings. Teach them how to save and why. You can encourage the habit by giving them cash to save and see how they handle it.
Get them a piggy bank or savings jar to keep their money.
Concept of business
You can only train your children, it is impossible to decide what they will do in future. Educate them on the concept of business and entrepreneurship.
Emphasize the major aim of a business is to make a profit. Tell them if the money invested in the business is more than the money coming in, then that is a loss. But if otherwise, it is a profit.
Use companies they can relate with to explain the concept. In case you have a relative or family friend who runs a business, talk to them. Find a time to take your children on tour to see how a business is being run first-hand.
Educate them on reverse mortgage
Discussion about reverse mortgage is important if there is a chance your children might be heirs to an estate. Aside from that, you might need to get one as you age. Their understanding of how Reverse Mortgage works will help them deal with the information when informed.
These talks might focus on the purpose of a reverse mortgage, the terms, what heirs and children will need to do if they intend to keep the house after the borrower dies.
Create opportunities for them to earn money
To simulate a real-life experience of effective handling of finance, create opportunities for your kids to earn money. This should be aside from their allowances.
Make them finish certain tasks to earn money. This should not include typical chores they are meant to help with around the house.
Train them on how to invest
Savings is good, but a strategic investment is better. Open a custodial account for your children if they are below the legal age.
Introduce them to personal finance and investment books. If the custodial account is with a brokerage, encourage your child to take advantage of the recommended investment options.
Also, inform them that not all investments are good investment, and if it is too good to be true, they need to do more research before putting their company.
Engage them whenever you are making an investment decision of your own. Ask for their suggestion and correct them whenever they give a wrong advice.
Live the life you preach
Kids learn most by watching their parents. Make sure you display the financial advice you give your children.
When you educate them about savings, show them how you do same every month. If you are saving to purchase something, let them know, and update them on the progress.
This will help them understand financial literacy is not just another school knowledge but something they need in their lives too.
Do not advice against frivolous spending and take your children on a spending spree. That would be tantamount to a mixed message.
When you receive your salary, let them see how you budget it so that it would be enough to sustain the family until the next payday.
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