Developing the correct money management concept from an early age is essential. Money management is a broad concept that includes the process of budgeting, saving, spending, and investing. According to a study released by the University of Cambridge, children aged 3 to 4 are able to understand basic money concepts, and many of their money habits have been set by age 7. Therefore, the earlier children develop good money habits, the better it is for their future. Parents can motivate children to build responsible money management habits with daily life examples. Here are 5 tips to help your kids develop a healthy relationship with money:
1. Discuss family’s finance with your kids
Some parents may think their kids are too young to understand the money concept, they are reluctant to talk about the family’s finances. In fact, it is not necessary to explain family’s finances in their entirety. Parents can first start with basic household expenses, educating children about rental, utility expenses, and miscellaneous items. Understanding household expenses gives children a better understanding of money and lets them build more responsible spending habits.
2. Let them learn from experience
Pocket money is not only for satisfying children’s actual needs but an opportunity to learn about money management. Kids can pick up good money habits through experiencing spending and being responsible for their financial decisions. Parents can teach children the concept of money allocation by encouraging them to divide money into 3 parts: “save”, “spending” and “share”, children may hence use their money more effectively by setting aside a budget.
3. Budget setting and expense tracking
Having a budget plan and keeping track of expenditures is vital to avoid impulse buying. Parents can teach their kids to set a budget and record their expenses using notebooks or online tools, letting them obverse their purchasing habits and figure out the difference between “need” and “want”.
4. Develop reward system
Parents can encourage their children to build good money management habits, like saving, budgeting, and recording expenses with appropriate rewards. Non-material rewards such as holiday activities, hobby classes, and quality time are good enough to motivate your children, and please be reminded not to become overly dependent on material rewards.
5. Set good example for your children
Recent research conducted by a financial institute shows that children’s financial concepts are significantly influenced by their parents. Children who have parents with good money behaviors are more likely to have better financial management skills, if the parents have financial problems, their children may have a higher risk of inheriting the same issues. Therefore, parents can help their children cultivate good money habits by setting good examples for them.