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Talking about money with your children? It’s an important and serious conversation, but that doesn’t mean it has to be a boring one. Well, actually, it probably should be an exciting one if you want to grab your child’s attention. Ideally you make a video series on TikTok for them, but for those who don’t have a TikTok account, a good old-fashioned conversation might still work, although talking alone won’t do the trick.
As a famous Confucian saying goes: “Tell me and I forget, teach me and I remember, involve me and I learn.” It is all about experiences. While you can’t run away from sharing some basic information, letting them experience the universal concepts and mechanisms of money is most important.
In this article, UNRESERVED has selected four topics for you to discuss and do with your child(ren). As most parents have come to know, no two children are alike. Never mind the age difference, some are just more responsible or receptive than others. So you will have to adjust the language, examples, and challenges to the individual child.
The Joy of Earning
Money, unfortunately, does not grow on trees. For most of us, it has to be earned. Even if your children might inherit a significant amount of money, they should know where money comes from and how rewarding it feels to be able to earn your own lifestyle.
Although there are different ways to earn an income, the basic premise is the correlation between working (effort) and earning (reward). You can of course explain about your own job or business and income, but it’s best to let them experience this by assigning them chores to do for money. Obviously, the more jobs they do, the more they earn. The bigger the chore, the bigger the reward.
You can take this to the next level by encouraging your children to start their own ‘business’ such as washing cars in the neighbourhood, babysitting, dog-walking, tutoring younger school children, designing jewellery for friends and family, and many more. Be prepared though—they might suggest that they want to become a YouTube millionaire.
The Art of Budgeting
Everyone can spend money, but not everyone can spend money wisely. Budgets are a fact of life, and even though for children it might look like there is enough money all the time, they must learn that you can’t buy everything you want. Not even with a credit card.
The Art of Budgeting often starts with explaining the distinction between things they need (like food) and things they want (for instance, the latest gaming console). Making your children aware that money is finite is key. Like time, you can only spend it once.
Without overwhelming them with too much information, you can explain how you have designed your budget to them; from the big-ticket commitments such as a mortgage, car, their education, to the daily cost of living, and the savings for later goals.
For the experiential part, if you give them an allowance, you can ask them to budget with it. Ask them how much they want or need to spend, and how much they want to save. There is a third category, and that is gifting and sharing. Perhaps you want to encourage them to think of others and have them donate to charity, either in cash or with clothes and toys.
Another exercise is to sit down with your children and budget your weekly groceries, especially the items you buy for them. It makes for a good math lesson too. That way, they get to learn the connection between total budget and individual cost of items. Take it to another level by letting them compare prices of different brands, different supermarkets and even different moments (promotions). Best of all, send them out to do some groceries themselves.
The Importance of Saving
The discipline and mindset should be instilled in children early on. Teach them to not spend everything they earn or receive, and that they should put aside a percentage of their “income”. Either for specific goals (that latest PlayStation 5 game), emergencies, or even sudden opportunities. Depending on their age, physical piggy banks—make it a see-through one—or savings accounts are great tools.
Especially in this age of instant gratification, learning how to delay a reward and how to save up for something big is paramount. There might be an unexpected benefit. Some studies have shown that children who can delay a reward turn out to be more successful in life.
So ask your child to set some realistic goals. Obviously saving for a specific goal is more motivating, since you know what you are working towards. And let them track progress for a little dose of gratification.
The Risk of Investing
Chances are you yourself are active on the stock market, either directly or via a fund. Perhaps it is too early to explain the mechanism of risk-versus-reward, and the story of greed and fear, but getting them familiarised with the core elements of investing can never hurt. It will also increase their interest in the companies they are investing in. Especially if the companies they invest in manufacture the products they love.
They can experience how the stock market works via a virtual stock trading game (which you can play together) or you can do it for real and give them a sum of money to start their own investment portfolio. Although they might not have earned the initial sum themselves, the fear of losing it is very real, and they will experience first-hand how investing works.
The Best Things in Life are Free
Although life itself is not about money, teaching your children about the value of money is important and can help them greatly in life. As the proverb goes, it might not buy them happiness, but it will give them financial independence. And the latest games, of course.
For more inspiration and information, and videos, visit the Eastspring Investments website.
Disclaimer: All investments are subject to investment risks. Before you begin, please take the time to read and fully understand the risks involved here.