Tết is probably the best time of the year for every Vietnamese child – as they will get a huge amount of “lucky money”. Now when the spring breeze passes over, how do you teach them to save, and use those money effectively?
Providing children with a thorough understanding of financial literacy at an early age, is vital to ensure proper money management skills later in life. Setting a realistic budget, responsibly managing credit and debt, saving for unexpected expenses, and learning how to invest will all be important life skills for every young adult to master. Unfortunately, many parents don’t teach their children money skills. Some parents feel that finances are not their children’s business, or that financial matters are too complicated for their children to understand. Others don’t want to burden their children with some of the more stressful aspects of money management, like debt and unexpected expenses.
If you don’t teach your kids how to manage money, somebody else will. And that’s not a risk you want to take! In this article, we introduce some good money management lessons for parents to teach your kids how to win with money at any age.
Teaching the basics of money
Research by the University of Cambridge reveals children as young as seven years old have an understanding of basic concepts related to finance.
Talking about money isn’t always easy, though. The concept of sharing financial information has long been regarded as a “taboo” in the U.S. For families struggling, money management can often be a stressful topic, making parents want to protect their children from the realities of financial distress. However, financial literacy is often left out of our typical education system’s curriculum. Therefore, parents are still the primary educators when it comes to teaching children the money management skills which will allow for a strong foundation of lasting financial competence.
A good foundation of money management will help your children:
spend their money wisely on the things they must have – these are their needs
save money for the things they like but can live without – these are their wants
set aside money for unforeseen expenses – for example, if their bicycle breaks down and needs repairs
stop accidental overspending.
At Everest Education, we start talking openly about Money with students from a very young age. We teach them how to create a budget, show them simple strategies to keep track of their savings, how to calculate and apply comparison to make smart money-related decisions. Students can even explore what is interests and compound interests, and know the basic rule of banking and investment at the beginning of their middle school – when they are introduced to the concept of Percentages.
>> Learn more about our Singapore Math program at https://e2.com.vn/programs/singapore-math/
How to Getting Kids to Budget and Save Their Money
1. Explain where the money comes from
Let your child understand that money doesn’t grow on trees. “When you’re teaching your kids about money, it’s important to teach them where it comes from. Money does not just come from mom and dad’s wallet,” says Rachel Cruze, personal finance expert and the co-author of “Smart Money Smart Kids: Raising the Next Generation to Win with Money.” “When you work, you get paid. When you don’t, you don’t get paid.” The key is to repeatedly demonstrate and demystify the relationship between work and money.
2. Preach the three principles: giving, saving and spending
When your child asks for a toy, let them know that they must buy the toy with their own money. This is the moment when the “three jars” lesson comes into play. Set up three jars for your child, each labeled “Saving,” “Spending” or “Sharing.” Every time your child receives money, help them budget their money between the three jars. Some of it goes into the jar for immediate, short-term spending: a candy bar or an ice-cream cone, perhaps. Some of the money goes to the jar for “savings.” Your child should choose their savings goal. Perhaps they want a new video game or a cell phone. Each time they get paid, they can watch their balance grow. The third jar should be for “sharing.” Money in the sharing jar can go to someone you know who needs it or be used to donate to a friend’s cause.
Tea Nicola, CEO of WealthBar, raves about this technique. “My daughter who is eight understands that there are three buckets of money that she has to keep track of: saving, spending and giving,” Nicola says. “For her, saving is usually for big ticket items like going to a special summer camp or other experiences she wants to have. Spending money is what she can use on a daily basis, such as buying a candy bar or something like that. We’re also teaching her the importance of giving. This could be giving to charity, or it could be giving to others, like buying a present for her friend’s birthday.”
3. Discuss Wants vs. Needs
The first step in teaching kids the value of saving is to help them distinguish between wants and needs. When your child reaches kindergarten, she’s likely ready to start learning a few more details about “wants” versus “needs”. Put simply, a need is something we must have to survive; like food, water, and a home. A want is something that’s nice to have, but you can actually live without; like an ice cream or a new skateboard. For clarity’s sake, parents might make all “needs” fall into the categories of food, shelter, and clothing, while a “want” is something other than that. There’s a gray area, of course – for example, Oreos are food, but they’re certainly not necessary.
Watch the video below to see the story of Larry the fish – it will help explain the concept to your kids. The video also has an idea for a quiz you can do with your kids to help them further understand needs versus wants:
Cash-clever kids know they have to take care of their needs, before they start thinking about what else they want.
4. Making a Wish List
A wish list is just another way of putting down financial goals on paper. Your child can learn to become a more determined saver by learning the importance of saving for the future, including these issues:
What she’s saving for
What she has to put away to get there
How long it will take her to reach her savings goal
Take a look at the table below as an example to list your child’s goals. You’ll see that there are two columns: short-term and long-term. Short-term goals are ones that can be reached in a matter of weeks or a couple of months. Long-term goals can take months or even years to attain (a few suggestions have been entered in this column for you). When a child is young, she’ll probably only have short-term goals; and can’t be expected to think in terms of months or years. That’s okay. Just having short-term goals is enough to get him started on the road to saving success. For example, an elementary school child might want to set a savings goal that can be reached within a few weeks or a month because this time frame is easily understood. The important thing is to have some sort of goal so that she can develop the savings habit.
Now that your child knows what she wants, you’ll have to help her put a price tag on what she’s saving for. For example, if she wants to save up for a new bicycle make sure that he tallies all the expenses involved – maybe she’ll need a new helmet, or a new safety gear as well.
5. Have Them Track Spending
Part of being a better saver means knowing where your money is going. If your children get an allowance, having them write down their purchases each day and add them up at the end of the week can be an eye-opening experience. Encourage them to think about how they’re spending and how much faster they could reach their savings goal if they were to change their spending patterns.
6. Leave Room for Mistakes
Your kid blew all their money and needs more? Let’s seize this teachable moment. Many parents can relate to this scenario: your kid had money, but they spent it all at the toy store. Now, you’re at the toy store again and they want something but they don’t have the money. What do you do? Don’t cave. Instead, seize this “teachable moment”. Part of putting kids in control of their own money is letting them learn from their errors. It’s tempting to step in and steer kids away from a potentially costly mistake, but it may be better to use that mistake as a teachable moment. In that way, they’ll know in the future what not to do with their cash.
“Teach them that when money runs out, it runs out,” Cruze says. “It will be tough in the moment, but in the long run you are teaching them to live below their means — and that’s the only way to win with money.” And yes, your kids will make mistakes, but it’s better that they make those mistakes under the safety of your roof.
Money Is About Lifelong Learning
Money is a tool that can have a very positive influence on somebody’s life, but if it’s not managed properly it quickly becomes a burden. Children should be exposed to handling money from an early age. There is no guarantee that a child, given the best financial lessons in life, will go on to use those lessons. However, parents should know and feel that they gave their children all the knowledge necessary to successfully handle their own finances. Teaching money skills to your children will promote habits that will serve them well for their entire lives.
As a parent, teaching your children about money – just like teaching them manners, or kindness, or standing up for themselves – is not a one-semester course with an exam at the end. It’s an ongoing commitment for you, and one of the most important lessons you can teach your child.
Further reading for parents
Some good books and resources to teach your kids how to save and spend money:
Should you have any concerns or any topics you want us to cover, feel free to leave your comments below. You can subscribe to our newsletter to get the latest updates delivered straight to your inbox, and find more parenting coverage at https://blog.e2.com.vn/e2-talk-tips-and-tricks-parents/