While financial education is not worked on in a more structured way in education, parents have a direct responsibility to teach their children the value of money, as well as the adoption of good spending and saving practices.
Today, the family is the main source of financial education for children. And as in any other aspect of life, it is best to teach by example. No complications: we are talking about the basics of money and its use. This teaching will be very useful for them when the time comes that they have to manage their economy, when they are independent people and have to manage their own income.
Talk about money naturally:
There is no need to be afraid of explaining aspects of money to children. You should always do it in a language adapted to their age. Without going into great detail, children should have a sense of their general economic situation and be honest about which expenses fit their economy and which don’t.
Where does the money come from?
Explain to them how money is earned, from their parents’ efforts and hours of work throughout each month. They should be aware of how much it costs to earn it and how quickly it can disappear if you don’t plan your finances very well. Children may believe that money is unlimited and not ponder the issue regarding spending.
The value of coins and banknotes:
You can show them, through games, the differences in the value of coins and notes. You should also make them understand that what you pay with a credit card is still the money you previously kept in the bank. When they are small, children can be convinced that the money we withdraw at the ATM machine appears as if by magic and that there is no end to it.
The advantages of an allowance:
Whether it is weekly or monthly, it will serve them to organize their economy: to learn what they can buy with the money they have and that when it runs out, they will have no more until the next allowance. This means that if they choose to spend it on one thing, they will be giving up another. We can help them create a basic budget from that allowance and review it with them at the end of the month. This is not about being inflexible, but about conveying to them the importance of planning.
Necessary versus dispensable expenses:
These are difficult concepts to convey to children, who are naturally more impulsive, but they are also fundamental. You need to wear shoes to walk down the street – a necessary expense – but to be comfortable, well-maintained and well-worn, you don’t need the most expensive sneakers in the store – a dispensable expense.
The habit of saving:
Make them see – and show them by example – the advantages of saving. It may be helpful to set them a goal that motivates them, buying a toy or a meal at their favorite restaurant, for example. To make it more tangible, you can use a transparent box in which to keep the money saved and stick a picture of the savings goal on it. That way, on the one hand they will see their savings grow, and on the other they will keep in mind the purpose for which they are saving it.
Article courtesy of MetLife, Portugal, a partner of The Living Abroad Guide.