The Importance of Money Literacy
The importance of money literacy cannot be stressed enough. Children from an early age need to understand how money works. If we equip our children early enough, they can avoid the mistakes we may have made, and they can be financially literate way before their teenage years. If you would like to have that conversation with your child about money but are unsure how to approach it, this blog aims to provide simple steps to help you.
Tips for Our Toddlers
We have children in different age groups, so we approach it differently for each of them. The twins – Shiloh and Zarah – are four years old; their learning is visual. As a result, we have mason jars to save their money. They get to see the money growing, and they get excited by that. Now they take pleasure in finding coins around the home and placing them in their mason jars.
Tips for Our Adolescents
Anayah, our 9-year-old, loves to shop. When we go to the mall, she loves to go to H&M to scour the shelves for cute outfits. I usually end up paying for everything, so I decided to change things up a bit so she could understand the value of a dollar. Children never really understand when you tell them the value of a dollar; you have to show them. The last few times that we visited the mall, I encouraged her to bring her purse. I told her she would make her first big girl purchase. If my memory serves me well, the hoodie she wanted was $15, and the backpack was $10.
The poor dear thought the total was $25; “I was like, do not forget the harmonized sales tax (HST);” she had no concept of that. I explained that most items have a markup of 13% attached to the price. She was livid. “Why do we have to pay taxes?” I explained to her; she sounded like a disgruntled taxpayer in her argument. It was hilarious. But now she understands taxes.
Delayed Gratification & Compound Interest
Eli, our 10-year-old, received a monetary gift from a family member, and he decided he would spend it on VBUCKS for his Fortnite game. His dad stepped in and said, “if you don’t spend this money, I will give you interest of $x amount every day. He didn’t understand the concept of interest, so we explained it to him. So he knows, the longer he delayed his gratification, he was gaining interest. Who doesn’t like interest? He is now constantly looking for ways to get that compounding interest.
I like practical examples, you can talk until you are blue in the face, but unless your children see real-life examples for themselves, they will never get it. The children think their allowances are not enough; they have two options, do more chores around the house or find a way to generate money. Eli has decided he will author a book, and he has written three chapters so far; Anayah has decided she will design doll clothing. The twins have decided they will have a youTube channel; I even heard Shiloh saying, “welcome back to our channel.” Hilarious, but all four of them are thinking entrepreneurship, and I love that.
Spend, Save, Charity
When we go grocery shopping, or to the mall, my new rule is that if I put an item in the basket, I am buying it, but if they put an item in the basket, they are buying it. I am pleased to announce that all the must-haves are now debated thoroughly before the purchase is made. But where’s the fun in getting an allowance and not being able to spend any of it. So once again, we decided that when the children receive their allowances, they can set aside how much they will spend, save/invest, and how much they will use for a charitable donation. These concepts allow them to understand having fun, having a nest egg, and helping the less fortunate. We are still working with them to implement these concepts. It will not happen overnight.
As they get older, we will introduce them to more concepts. For now, they know cash or debit is king, and credit is good if you are trying to build a credit history, but the balance on the cards must be paid off before interest is charged.
Teach them the Value of $1
I do not believe in giving children everything they want; they should work for it. When they work for something, they value it more. Recently, Anayah wanted an overpriced dolly. She also wanted doll accessories like a stroller and a car seat for the doll. I refused to buy another doll, especially at the price it was being sold at; she purchased the doll, the stroller, and the carrier. I have never seen her take such care of anything, ever, like she is taking care of these items she bought. When children buy things for themselves, they value the items more.
Children will ultimately learn their money habits from their parents; it’s our responsibility to set an excellent example for them. If we are always spending impulsively, they will do the same. If we are always in debt, they will do the same. Be responsible and set a good example for them to emulate.
Teaching Tips For Your Children
In summary, here are seven teaching tips for your children on the importance of money literacy:
- Teach children to save/invest, spend and donate to charity
- At different age groups, prepare them accordingly. For example, for toddlers use mason jars, for older children use piggy banks, and then eventually, bank accounts
- Let them buy things for themselves with their own money
- Explain compound interest and taxes
- Teach them about delayed gratification and opportunity cost
- Encourage entrepreneurship
- Explain why cash and debit are better than credit