Teaching Children about Finances and How to Save

Published on 13 Apr 2023

Child Development

General Article

Early financial education for children is important to help them learn how to manage their money as they get older. Children can benefit greatly from the guidance of their parents and others in their life. Research carried out by Dr Terri Friedline, an Assistant Professor of Social Welfare at The University of Kansas, has shown that children are developmentally capable of saving by the age of five or six. But the sooner they start learning basic concepts like saving and budgeting, the better.

Some ways of teaching children the value of money and the importance of savings are as followed:

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1. Be a good role model

The simplest method of teaching your children the value of saving money is to serve as a good role model. According to research, the financial knowledge and principles children acquire as they transition into their teenage years and adulthood are for the most part derived from their parents. Your own efforts to save money for short-term and long-term goals are likely to encourage your children to do likewise. Make sure to involve children in financial planning, budgeting, and saving activities. This is to show them how to handle money and to expose them to some good financial habits that they can cultivate.

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2. Distinguish between wants and needs

One of the most important skills your children need to learn about saving money is distinguishing between wants and needs. Explain to them what needs and wants are, including the basics such as the need for food, shelter, essential clothing, healthcare, and education. You may even want to quiz them occasionally by drawing their attention to some things when you’re out to see if they understand what items are necessary and what is not.

When you are out shopping with your child and he asks for something expensive or unnecessary, don’t be afraid to say “No” but provide reasons for the stand you have taken. For example, “No, we do not need that toy as you will probably receive some toys on your birthday. Let’s wait and see.”

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3. Help them cultivate a habit

Being told to save without being given a reason for doing so is not likely to convince a child. Defining a financial goal with children can help motivate them. According to Tea Nicola, CEO of WealthBar, the key is constantly demonstrating and clarifying the relationship between work and money.

Help children develop the habit of saving by giving them three jars or saving pots in which they can deposit coins or cash. Encourage them to label each jar as follows: “Spend,” Save: and “Give,” and any time your child receives money, have them decide how much they want to put into each jar. The goal here is to allow your child to choose how much they would like to put into each jar and for what purpose. Make them work for it. Giving children some money is essential if we want them to learn how to manage their finances. You need to be consistent and provide some money to them regularly. After all, they can’t be expected to budget or save if they don’t know how much money they will be receiving and how often.

You may also consider giving them extra pocket money when they take on certain chores and complete them satisfactorily.

Although it’s important to teach children that most domestic chores should be shared as a family and not undertaken for pocket money, some tasks, like cleaning the car, mowing the lawn, and cleaning the whole house, might warrant a small payment.

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4. Teach them how to budget

Budgeting is a big part of being financially responsible. If your child receives pocket money regularly, talk to him about how to stretch that money in order to get good value out of it. Depending on his age, he might divide the funds into daily amounts and allocate them to specific spending categories.

Children might not know how to divide a weeks or a month’s worth of pocket money at first. The first few times, assist your child in making a budget by discussing the requirements they anticipate buying and which special items they might wish to save for. Depending on their age, use apps, spreadsheets, envelopes, or jars to assist them in creating a budget.

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5. Teach them how to shop wisely

Review alternate ways to spend the money with your child before they decide on a purchase to emphasize the importance of making financially sound decisions. Teach children how to shop around and compare prices and product quality. Encourage them to be knowledgeable about advertising by talking to them about how companies often persuade people to buy items they do not need or which may not really be suitable for or of benefit to them.

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6. Allow your children to shop on their own

Give your children their allowance when they go shopping. You will be able to see how they feel about buying things. Allow them to spend some of it, have fun, and make their own decisions. Having money and using it to buy something is exciting. If your children want to spend more money than their allowance, tell them to be more patient and thrifty and to use only the money that they have. Don’t lend money against the allowance your children will receive. Teach them instead about responsible spending and the costs associated with making purchases. In addition, tell them that the most crucial factor is that they are only able to purchase what they want because they have saved the money in the first place.

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7. Make it fun

Just like adults, children struggle with delayed gratification. Find financial goals that the children are able to understand and follow. Offer prizes if they are able to reach their financial goals. This will prevent children from getting bored and help to keep them focused on the task at hand. You may also want to allow them to complete the challenge jointly or in a competition with a view to building relationships.

In short, it is never too early to start teaching your children about saving, budgeting, and the importance of money. Children learn to save by watching others save. So the best way to teach your children about saving money is by allowing them to see how you have built up your own savings. It is essential to teach your children at a young age that money is not only meant to be spent - it is also necessary to save it regularly.

This article at a glance:

Teaching children about finances should start at an early age as it is likely to affect how they view money as they age. Some ways parents can teach children about money and how to save include the following: