In this age of information, society is going through tremendous changes at almost breakneck speed. Every day we read stories about people becoming millionaires from innovative business ideas – and it often seems as if they did this overnight.
Equally, there are loads of stories about those who are really struggling to make ends meet in the current financial climate. You could say that the disparity between the ‘haves’ and the ‘have nots’ could be down to their financial literacy. In other words, their skills at wealth generation and understanding the basic rules of money.
It’s pretty obvious that our kids aren’t born equipped with this crucial knowledge and, as parents, it’s our job to teach them how to be financially responsible adults. Easier said than done when you may not feel all that financially savvy yourself. How can you teach your kids about money when you struggle to cope with your own finances? If that’s the case you might lack the confidence for teaching financial literacy to kids.
You don’t need to worry because there are plenty of resources to help you to quickly learn the knowledge and skills you need and pass these on to your children. For example, here you will find practical ways of influencing your little ones to achieve financial freedom.
Tips for teaching financial literacy to kids
Identify how your children learn
As a parent, I’m sure you’ve observed that children can soak up knowledge like sponges. I know Caitlin and Ieuan certainly have better memories than I do these days! In fact, kids can learn from many and various channels and they are not discouraged by failure.
Not only do children have their own unique personality, but they may also have a learning style which works best for them. Unfortunately, the education system doesn’t cater for every style of learning and, whilst there are seven prevalent learning personalities, generally, a ‘one style fits all’ approach is used. This means that a lot of children can be easily branded as poor learners when they are anything but.
If you can identify your child’s learning style early enough, you can help them to grasp concepts faster. At the same time, acknowledging their preferred learning style will go a long way to help a child realize their uniqueness and embrace their strengths. This means that your children will also be more receptive to learning the financial skills you have to teach them.
Before giving the child money, empower them
As a concept, giving children pocket money has both its supporters and its detractors. Some parents don’t agree with the idea and others give a small, fixed amount each week – as we do. But rather than just handing over cash, it’s a good idea to explain how to use their pocket money wisely. Any stream of income can be a tool to create wealth if spent wisely and if it is invested. Consider a prepaid card for kids as an alternative to simply giving them cash.
As a rule of thumb, if your outgoings are very high and you do nothing to budget, you’ll find you end up with even less in the long run – and your chances of increasing your wealth will be small. Help your kids to grasp the concept that, with the right inspiration and effort, great ideas can generate cash. Teach them that you can start generating an income with practically nothing. All you need to find is the right idea and a way to put it into practice.
Explain to your children that they do not necessarily have to get stuck in the rat race if they understand the financial potential of a great idea.
Be a good example at all times
Children tend to learn from those around them so setting them a good example when it comes to finances is a good idea! To do this, you may have to alter your own relationship with money and look at how you control your finances. By simply becoming better at dealing with your personal finances, you can easily pass the same skills to your child and they will be ready to enjoy financial freedom when they grow up.
When you change your mindset from scarcity to abundance and adopt a way of thinking that constantly looks for ways to generate more income, you will become that great role model for your children. If you want your kids to become successful, you have to prepare them up for success. Instead of striving to work for the rest of your life trying to provide for the family, teach your children how to adapt to a changing world and create wealth.
Make the learning process enjoyable
If a child enjoys the process of learning, it will be far easier for them to absorb their lessons. For example, why not teach them games that revolve around financial principles – Monopoly is a great one! Games can be a great way to help your kids to understand debt and the risks involved.
When you rely on loans to pay for an expensive car or holiday, you may be setting yourself up for a poor credit score if you default on your credit card or loan repayments. ‘Live within your means’ is a wise piece of advice my parents passed on to me.
If you do end up with a poor credit score, your ability to take out a mortgage and further loans may be severely impacted. Worth getting your kids to think about if they see themselves buying their first home as soon as they leave school!
On the other hand, taking out an instalment loan or a business line of credit to help you scale up your small business can be a wise move if you have taken the time to put together a thorough business and marketing plan – one that is supported by your bank and other investors.
In the long run, you will hopefully turn a profit on those borrowed funds – once your expenses and taxes have been paid, of course.
Getting your kids to watch Dragons Den is a good way to show them how some business ideas are great and clearly going to generate profit whilst others fall at the first hurdle as the entrepreneurs have not done their homework.
Sometimes we all make bad financial decisions
When your children are growing up, there will be times when you see them squandering (at least in your opinion) money on meaningless things. You may feel conflicted because you know they need to learn the negative lessons that come with poor budgeting.
At the same time, it is only natural that you’ll want to help them to get back on the feet. But is opening the ‘bank of mum and dad’ always a good idea? Teaching financial literacy to kids is going to be an uphill struggle if parents always bail their kids out when they get into debt.
The truth is having to deal with the consequences of bad financial decisions can be quite effective in teaching the child the importance of good financial management. Every financial decision has consequences and if your kids want the latest toy and can’t afford it because they have spent all their cash on sweets (or Robux in Ieuan’s case), they may be more careful in the future and make a better choice next time.
Even when your children don’t seem to be grasping the lessons, you don’t have to be mad or criticize their choices. If you do this, it’s likely that you are making them believe that it’s out of their reach to master the concept.
To sum up
While you have many other parenting responsibilities, helping your child to learn how to become financially free is very important. If you don’t teach them, there’s a risk that they will pick up bad money habits from alternative sources – leading to serious consequences for their future success and happiness. Instead of letting your kids learn about money from those whose only interest is to profit in them, why not take charge of their financial education. You may learn a lot in the process too. Teaching financial literacy to kids may benefit the whole family.