Managing personal finances can be a daunting task for even the most well-educated adults. The constant compulsion in our society to buy more stuff (that we probably don’t even need) has led many from our generation to rely heavily on credit, to make financial choices that may be a hindrance to our retirement – a trend that has been plainly evident in a worldwide financial crisis that has lasted far longer than any of could have anticipated.
As we are slowly realising where we went wrong, we begin to pull ourselves out of the mess we have gotten ourselves into and look hopefully toward the next generation. In one of the most economically difficult and financially advanced eras of human history, little is as important as teaching our children about the importance of financial wisdom. How far do we take this eduation, and where do we begin? A few simple principles will help us to establish strong financial goals for our posterity.
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1. Saving is Better Than Spending
While our goal is not to teach our children to be spendthrifts, we do want to establish with them the fact that money is limited and we should prioritise how we want to spend it. Even if you have unlimited resources, it is still important that children learn to set goals and save in order to reach them. Give them a weekly allowance. Let them pick out a particular toy they would like or a theme park they would like to visit. Then have them save towards that goal rather than buying sweets every time you visit the grocery store. Instilling the principle of saving over instant gratification will ensure that our children are prepared to live on a limited income.
2. Budgeting Can Actually be Fun
Older and younger children alike can easily grasp the necessity of a budget. If your child receives $100 for his or her birthday, have them make a plan of how they will spend it. If you feel comfortable, let them look at part of your own budget. You may even consider giving pre-teens a clothing allowance or entertainment allowance and letting them budget this money appropriately. Make it a challenge or turn it into a game. The earlier children learn to make budgets, the easier it will be when they really need to make them.
3. Reducing Expenses Can Lead to Increased Savings
Maybe your child is good about saving part of their money each week, but still likes to spend some on instant gratification items like computer games. Encourage these kids to spend a week or two saving all of their money. Point out how much more quickly their savings grow when they reduce how much they spend weekly. When they realise that they can achieve their goals more quickly by not buying these small items, they will be encouraged to save more and spend less.
4. Saving Money Makes Money
Children can usually open bank accounts when they are as young as six or seven. Take them to the bank and have them put their savings into an account. Show them how much interest they are gaining each month. Also take this opportunity to begin discussing with them how credit cards have the opposite effect. Rather than making interest, credit card companies charge interest each month. As children get older, begin teaching them about investing in the stock market. You may even consider letting them invest a small portion of their money in a stock or bond to experience how the market works. A personal investment will spark their interest and prepare them to take control of their financial future.
Image: Pink Sherbet
David is the Co-Founder of