Financial concepts kids should know
There are some key financial concepts kids should know because they will have a direct impact throughout their lives. These are life-changing lessons that help children to distinguish between wants and needs.
The practical aspect of finance is a topic that teaches kids about being responsible and managing money from an early age. Remember these are formative years and habits are often formed in the early years.
Children who are aware of financial concepts and have even a basic financial understanding turn out to be better at managing their finances in later years.
Financial concepts kids should know
1. Value of money
The first financial concept kids should know about is the value of money. Parents try to fulfill their child’s wishes through the best of things that money can buy hence children often fail to grasp that money is hard-earned and not easily available.
Explain to the child that money has to be used properly otherwise it will be spent and there will not be any money left even for necessities. This basic lesson from childhood will stop kids from being extravagant at every turn.
2. Difference between need and want
Start telling no to most of the demands and explain that money is limited and cannot be spent on every whim. Parents should make the child understand that there is a basic difference between wanting something and needing it.
Encourage your children to become financially sensible and not spend on whatever they want.
The most vital financial concept kids should know about at all costs is the importance of savings in life. Start from an early age by giving them a piggy bank and encouraging them to save their pocket money.
It is easy for young children to grasp the concept of saving hence keep explaining how money saved can be used later for important things.
Saving is not only about money as you can make examples out of toffees or other things that your child likes. With time this will become a habit and the kids will learn to handle finance in a controlled manner.
Keeping a track of your money and knowing when and how to spend it so that you have enough left for emergencies and savings is an important financial concept.
Explain the idea of budget as it will help kids in planning finances and being organized.
Give the kids a fixed amount of money and small boxes or jars with labels like spending, saving, and even a charity jar where the children can distribute their pocket money for buying things, saving for a later period, and giving it out to the needy in respective jars. This type of activity will help to budget and encourage them to save and spend accordingly.
5. Keeping track of spending
Keeping track of spending is equally important as savings and budgeting. Encourage the kids to keep a tab of their daily spending by writing them down every day. Make sure that all the entries are recorded daily and totaled every week.
The practice of keeping a tab on savings will help children to understand expenses and adjust the budget accordingly so that they have enough left for the whole month.
6. Loan and debts
Another financial concept that will help kids in the future is loans and debts and you can explain both quite easily. If your child is hellbent on something and he has spent all the money this is your golden chance to describe both concepts.
Remember borrowing money can lead to financial ruin so children should be aware of this life lesson from an early age. Never encourage children to borrow money even from their parents, siblings, or grandparents as it will become a habit and come back to harm them later on.
As parents, you can educate how he can take a loan from you only this time to buy the desired item and how it will put the kid in debt.
Explain that the original amount plus interest will have to be returned within a stipulated time frame and it will be deducted from his pocket money. Make sure that the interest amount is high enough to pinch him in the pocket and stop him from taking another loan from you quite easily.
7. Protecting key information
Most people are handling money through technology via cards, ATMs, Apps or net banking, etc. Explain to your child the importance of keeping the information secret and not sharing it with anyone even if the person is very close.
These are modern times where children often are techno-savvy from an early age so why not teach them about basic financial concepts?
Sufficient knowledge about how to handle money, what is budgeting and what is the importance of savings can help to shape a kid’s future in the best possible manner