Week 4: Teaching Children About Money Can Mean Better Financial Literacy for the Whole Family
Developing financial literacy skills should start at a young age (in primary school) and continue through high school and university and lessons can come from structured experiences as well as from participation in family financial decisions. That last suggestion may come as a shock but involving them can be one of the most effective ways to prepare your kids for money management in their own lives.
"Allowances" Can Be Helpful or Harmful
At an early age, paying a child for extra work around the house helps them to understand the concept of cost-benefit or work-benefit. An Allowance by itself does not do anything unless there is something that must be done to earn it and, if not done, there is no allowance.
Part of the finances of a household includes the reality that some things need to be done just to maintain our lives and that everyone in the household should participate – getting groceries, walking the dog, cooking, cleaning, mowing the lawn, shovelling. There is a cost to all of these things and financial literacy can begin with learning their impacts on the family.
It can also help for a child to know that their contribution matters and that rest of the family is counting on them to do their part - just like in the "real world".
Wants Become Teachable Opportunities
Children have lots of wants, creating opportunities for financial literacy lessons. Consider the cell phone; explain the costs of cell phone ownership and try to put it into perspective. If your kids babysit or have a part-time job, talk about how many babysitting jobs or work hours are or would be required to pay for the cell phone - or even get them to pay for some or all of the expense.
Or, if you are really open to discussing household finances, talk about how much of the household grocery budget or utility bill would be required to fund the cell phone purchase and ongoing use.
Openness Can Have Huge Benefits
When a financial shock or windfall hits your household, use the opportunity to discuss it with children and how you are going to deal with it and why. Talk to your kids after you have dealt with the emotional stress on yourself, of course, because, although they should understand that it is normal to feel stress associated with money at times, sharing that full burden with your children can often be too much for them at a young age.
Examples are the needed new roof, replacing a car, significant car repair expenses or receiving an inheritance. Of course, dealing with your children and trying to get them to learn from your experiences assumes that you have the financial literacy skills to deal with the situation. Perhaps you can both learn at the same time!
For older children who are considering post-secondary education, early high-school is not too soon to start discussing how their education will be funded after high school and what are realistic expectations for family contribution.
Life presents lots of opportunities to hone your own financial literacy skills and to help your children develop theirs. Deciding that you will share as much as possible with your kids can help you to be disciplined in making decisions and dealing with the impacts on you before you share with them, and that can be a good thing for the whole family.