Teaching your kids smart money habits from an early age is one of the most important things you can do as a parent - and it can be a fun and rewarding experience, too! Not only will it help them develop strong decision-making skills and a sense of responsibility, but it will also set them up for financial success in the future.
If you want your children to be financially astute adults, consistent exposure to good money management practices will eventually become second nature to them, giving them an advantage later in life. So, how do you teach your kids to be smart with money? Here are our top six tips.
1. Start early and lead by example
It's a good idea to teach your children about smart money habits from an early age - and lead by example. Children learn by observing their parents' behaviour, so it's essential to demonstrate good financial habits. This involves being mindful of your own spending, saving regularly, and avoiding unnecessary debt. If your kids see you making wise financial decisions, they will likely follow suit.
Emphasize the value of money and having a good relationship with it. By starting them young, you are laying the foundation for their financial literacy, which will help them to focus on their future and prioritise their goals.
2. Teach your kids to earn money
Giving an allowance to our kids is a common practice and is a great way to teach them about money management, but it's equally important to teach them the value of earning money. Instead of simply giving them money each week, encourage them to work for it. Assigning household chores or rewarding them for excelling in school or sports are some ways to do this.
This approach will help them understand that money is not free, and the more they work, the more they can earn. On the other hand, if they are not putting in enough effort, their allowance can be reduced. Actions like this instil discipline and reinforce the idea that if they work hard, they will be rewarded.
3. Train them to save
Teaching children the importance of working to earn money is a crucial step towards financial literacy. Once they understand this, it's equally important to teach them about the value of saving. Younger kids can benefit from having a piggy bank, as they can watch their money grow and hear the sound of it as well. For older kids, open a savings account and introduce them to banking and interest. You may even want to deposit some of their allowance directly into their savings account to prevent unnecessary spending. Encourage your children to set savings goals and make sure you keep them informed about their balance so they can track their progress.
This approach can greatly help improve their financial planning skills, as they can physically see their savings grow and feel motivated to hold onto their money.
4. Demonstrate that things cost money
Teaching your children the value of money and the importance of saving is essential. Once you have established these concepts, it's time to take the next step and show them that everything comes with a cost and that they must learn to spend within their means. When you go shopping with your kids, and they start asking for things, explain to them how much it costs and ask if they really want to spend their hard-earned money on it. For instance, you can say something like, "You could buy that new video game, but then you won't have enough money left to purchase the new iPhone you have been saving for." This way, they will understand that they can't rely on Mum and Dad to buy everything for them - and that everything has a cost.
5. Involve them in financial conversations
Involving your kids in the family budgeting can help teach them valuable money skills. When you're creating your monthly budget, saving up for a big event, or dealing with an emergency, consider talking to your older children about it. Explain how the family budget works and how you prioritise your spending. Encourage them to ask questions, as they might find some concepts difficult to understand.
It's important to show them there may be some things you can't afford to buy right now, given your financial situation. Once you've explained everything, ask for their input. This will help them develop their ability to make choices and give them a realistic idea of the current situation. It will also help to prepare them for what they might encounter in the future as independent adults.
6. Talk about needs versus wants
It's common for both kids and adults to confuse their wants with their needs, so it’s important to teach your children the difference between the two and how to prioritise them. Needs include essentials for survival, like food, clothing, and shelter, while wants are things that are nice to have but aren’t essential.
Encourage your kids to prioritise their spending on needs while saving up for wants. By teaching your kids to take personal responsibility for their choices, they’ll learn that if they spend their money on wants, they might not have enough to cover future needs - this helps to encourage a sense of accountability.
Younger children may tend to be impulsive as their brain is still developing. Therefore, be patient and teach them to weigh up their needs against their wants. Constantly remind them of the difference between the two and encourage them to make responsible choices.
Set your kids up for a brighter future
It's important to teach your children smart money habits for a better future. This includes understanding the value of money, saving, budgeting, and avoiding unnecessary expenses. By teaching your children these skills early, they can develop good money habits that will serve them well throughout their lives.
Here at Safe Financial, we also understand that the cost of children's education is rising, which can be a financial burden on families in the short term. Whether you need to buy a new laptop, pay school fees, fund a field trip, or purchase a new school uniform, we're here to help. Our cash loans, up to $5,000, make it quick and easy to access extra funds. Once a loan is approved, the cash is deposited into your bank account within a few hours - so you no longer need to worry about how to cover those expenses to secure your children's future!