Financial literacy is simply having the ability to effectively use and understand various financial skills like budgeting, financial management, and even investing. Without proper financial literacy, we run the risk of wasting our resources and not being able to retire knowing we never have to depend on others for our survival.
And the numbers show financial education is sorely needed: More than 25 percent of adults living in the United States don’t have enough savings to cover an emergency amounting to $400, and the median retirement savings for U.S. Americans for ages between 55 and 64 was only about $134,000. There is no doubt the pandemic aggravated these already grave numbers even further.
If you are a parent to minor children, then it is never too early or too late to teach how to have a healthy relationship with their financial resources.
Be a good example
Here’s a hard pill to swallow: The best way to teach our children is to model by example. We cannot preach to them what we personally do not practice. While no parent is perfect and there are things beyond our control, we can still show our kids how frugal we are and that we are not flippant about the money that we have. Here are some examples of how we can demonstrate to our kids what it means to be smart with our money:
- Educate yourself on what you can do to maximize the resources you have now, whether it’s through investing or other residential property strategies like mortgage refinancing. You cannot give what you don’t have, and in this case, it’s knowledge about financial strategies and management.
- You cannot teach your kids not to be greedy with things they don’t need if they see you struggling to pay for your phone upgrades every year. Teaching the family how to live within or even below their means will start with you.
- Avoid arguing with your spouse or partner about money. If your kids see that you allow finances to ruin relationships, they might have an unhealthy view of money.
Set a good example for your kids, and they will be much more likely to follow it when they grow up.
Teach them about opportunity cost
At its basest, spending on one thing is simply losing the opportunity to afford other things. If you give your kids allowance, teach them how to save their money by showing them what they will miss out on by spending too much too soon. For example, if your kid wants a video game they don’t need now, you can tell them they might not be able to afford the sneakers they want later on. Teaching them about opportunity cost as early as now will help them learn the value of every centavo.
Give them pointers on how to be savvy consumers
Because children have so much access to the internet now, they are also more vulnerable to digital marketing tactics. Here are some practical things you can do to help them realize they don’t need to buy everything they see on the ads of social networking sites:
- Teach them how to be content. Remind them that just because their friend’s family bought a new car, it doesn’t mean your family car is lacking. Tell them they don’t need to compare themselves with their friends as well.
- When they come across an ad for a product they suddenly want, tell them that those brands took those pictures to make the product look good and to create FOMO (fear of missing out) in their viewers. Ask your kid if they really need the product and if they have space for it in their room, and if it will just gather dust eventually.
Teach them how to invest but make room for mistakes
If you have a kid who’s interested in investing and business, cultivate that curiosity and allow them to play around with that interest. Give them access to resources that will allow them to learn more about the subject, and make sure to guide them. If you have a kid who’s asking for more allowance, teach them to earn it in a healthy way by encouraging them to do a rummage sale or to start a lemonade stand.
But as you guide them throughout this process, be gentle with them and allow room for mistakes. The key is to help them to have a healthy and positive relationship with money, not resent it.
Teach your kids to see money as a tool to help them achieve their goals and not the end-all and be-all of life, and you have the building blocks for raising a financially healthy and happy child.