Updated: Jul 5, 2021
What is financial education for children?
Just like when you educate your child to be polite, to respect others, or how to behave in society, it would also be natural to teach them about financial education. That is, to teach them the basics about the importance of money: where the money comes from, how to manage their income, how to prioritize and plan expenses, how to make savings, or how to invest to multiply their income.
Financial education for children starts at home. This subject is lacking from the mainstream school and you are not going to find it within other subjects taught in school, either. Basically, in order to become adults with a healthy financial life, children have to learn from their parents all these notions regarding money, income, savings, expenses, or even investments.
Why is it important to provide financial education to children at an early age?
As we were saying above, it is the role of parents to encourage their children to have a positive outlook on managing their own finances. It is important to do this at an early age, so they can inherit and establish some fundamental values regarding money. And these values will surely be useful for them ahead in their life journey.
There are studies that show that healthy financial habits learned in childhood and consistently practiced until adulthood, lead to a successful life, in which the adult is financially responsible.
Many parents avoid openly talking about money in front of their children, considering that as a form of protection from life problems, but at the cost of obscuring them from the true reality. In order to have a healthy long-term financial life, it would be good for children since early times to be aware of the financial situation of the family, or how to earn money and how to manage it efficiently. This way, they will grow up with a much more mature approach in regards to money.
If from an early age of 7-8 years, children will have their own budget to manage, then they will learn the true cost of products. The fact that they have to manage their limited budget on their own will make them compare prices and make healthy purchasing decisions.
Moreover, they will learn how to save in order to buy their desired products and will understand that they have to make an effort in order to achieve that – as teenagers, they can even do certain tasks to earn money - to get or raise a certain amount of money. Furthermore, if they learn how to save since childhood, there are great chances to keep these healthy financial habits all the way through adulthood.
At what age can you teach financial responsibility to children?
Some experts say that financial education can start at home, through play, from the age of 3. From an early age, we can show the little ones what money looks like by playing the "supermarket" or by telling them how money is earned and involving them in real situations where money is used.
Further, when they enter school, we can give them a daily budget, "pocket money", or a monthly allowance – which they can manage as they see fit. Thus, they will better understand the value of money and become more responsible.
How can you develop healthy financial habits for your children?
1. Give them a budget to manage
Basically, you make them responsible over their money. This is a good opportunity for them to learn how fast money can go, that they need to pay attention to prices, and that they don't have to spend it all at once.
2. Teach them to save
Use yourself as an example by teaching them how you save money. In turn, you can tell them that they can save too from their pocket money or monthly allowance – perhaps, you can even buy them a piggy bank.
3. Teach them the value of money
It often happens that the little ones see, on TV or in stores, different toys that they really wish for. It is important to draw a line when they want something that is very expensive and you cannot afford it or it is simply not worth the amount of money. Explain the reasoning and offer them alternatives. If they learn they will not always get what they want, they will perceive differently the value of the things.
4. Educate them about responsibility
When using your family budget – talk to your children about it, about monthly expenses, and family priorities. Try to ask their opinion when you want to make a purchase. This way, they will feel happy and involved and will exercise their financial decision-making and responsibility.
5. Teach them that they can make money by doing what they love
If they want to earn more money to buy something more expensive, you can encourage them to do small tasks from which they can earn money. E.g. to walk the neighbor's dog, to paint a fence, to make a lemonade stand, to make handmade accessories, etc.
Well, these are some of our recommendations. But you, how do you do it?