3 Crucial Money Skills To Teach Your Children
How we perceive money starts from childhood. As parents, what are the most crucial money skills that we should impart to our children?
By Dawn Cher -
We already know that one’s childhood and life experiences greatly influence our attitudes towards money. Even among primary school children, this can already be observed — we all know of that entrepreneurial schoolmate who hawks limited edition collectible cards to make extra pocket money, as well as that classmate who keeps a tight rein on their allowance and saves up for something they want.
And that is exactly why we, as parents, need to start thinking about what money skills we want to impart to our kids. The cost of living and rise of digital payments make this even more imperative. If we don’t teach our children how to manage their money wisely from a young age, they will eventually have to “pay” to learn these lessons next time in the real world, lik running up credit card debt or losing their money to scams.
Here are a few of the most important money skills you should teach your children about:
A lot of financial issues arise when one fails at spending within one’s means. This is why learning how to budget is an important skill, one that is developed over time and with practice.
In today’s capitalist society, everyone is screaming for a share of our money. Advertising rakes in billions of revenue each year for the companies who can best tempt their audiences into parting with their money for their products or services.
And just like us, our children will find it hard to resist temptation too, so we need to start giving them chances to hone and practice their ability to say “no” to impulse purchases from young.
Teach your child how to spend within a budget, such as the weekly allowance they receive from you. Start by reviewing their transactions together with them, and use question prompts such as:
How much have you spent this week?
What are some of the things you need to buy each week?
How much money do you have leftover to save?
What are some ways to spend less money?
Are there any purchases that you regret making?
What are some things you can do for free?
If your child overspends, it is important not to make them feel like you are judging or criticizing them. Remember, the world will not end tomorrow just because your child decided to splurge $20 on a toy he didn’t need. Instead, we want to teach them the skill of reflecting back on their decisions and learning how to do better next time.
As soon as your child learns how to count, you can start to model budgeting behaviour in front of them and getting them involved in budgeting decisions together!
Another crucial life skill to teach is that of delayed gratification. If you remember the famous marshmallow test that was conducted on toddlers in the 1970s, the research showed that the toddlers who could wait and resist temptation grew up to achieve greater success than those who couldn’t.
Intrigued, I ran the same test on my first child before he turned five (see his reaction here).
Thankfully, he was able to resist the temptation of his favourite gummy sweet and successfully got rewarded with a second gummy. But prior to running the experiment, I kept asking myself, “If he fails the test, what can I do as a mother to help him learn about delayed gratification?”
The good news is, research also shows that delayed gratification is not simply a skill we are born with, but one that we can learn and get better at over time.
Teaching your child how to save money towards a goal is one great way to cultivate delayed gratification. Have conversations with your children on what are “needs” vs. “wants”, and then encourage them to save towards the items that they want.
Children learn best by seeing and watching, so you can also consider buying a transparent piggy bank where they can literally see their savings grow and pile up over time. I started this as early as when my son was 2 years old, and he used his savings to buy a toy for himself at the age of 3.
To make it fun, you can give out reward stickers along the way as they hit various savings milestones!
Finally, another underrated skill you may want to impart is to teach them about investing, but this will have to wait until your child is a little older and able to grasp the concept, mainly because you don’t want to give them the wrong impression that money is easy to grow either.
There is no magic age, but a good time could be when they reach their teenage years and have shown that they can budget and save reasonably well.
Investing is a lifelong journey with infinite rewards, and children who grow up in households where their parents invest often go on to become successful themselves. Of course, you need to be able to understand how to invest by yourself so that you can also teach this to your child.
Start by having conversations about stocks and bonds, and explain to them how these are essentially minute ownership stakes in an actual business. For instance, if your child likes Hasbro (Nerf guns, anyone?), you can even buy Hasbro stock and show them the dividends that the company pays into your bank every quarter.
To learn more about methods and games that you can use to teach your children about money, read our commentary here!
Dawn Cher is a mother of two and the founder of financial blog SG Budget Babe. She started investing for her children as soon as they turned one, and documents her journey teaching financial literacy to two young boys over on her Instagram.