“My child goes at $20 per 50 meters unlike my car that does $5 per 100 miles”, said the woeful looking man (shopping in a bazaar) in a TV advert.
While most kids are not that spendthrift as such, but nevertheless, children really don’t have much concept of wealth and how it is earned, preferring to tap into their parents as some sort of ‘unlimited piggy bank’. After all, being a child can be quite lucrative, in addition to free accommodation and healthcare, there is also free food and apparel not to mention the odd gift thrown in for good measure every now and then. But with freedom comes responsibility. And it’s high time even young children should learn at least a measure of such responsibility. In due course, it will help them grow into more financially responsible adults and hopefully keep them away from the clutches of debt collectors.
Here are some tips to help teach children financial freedom and how to manage it.
The concept of saving
Saving can be defined as “Putting aside some money for utilizing that amount later” The concept of saving can be introduced at a very young age indeed. Even children only four years of age may be taught the virtues of saving money. This is because it’s a very easy concept to understand and once it has been grasped properly it may well prove to be a life altering experience for the child in question.
Let us start with a common example.
For this example two chocolates may be used. Both the chocolates may be given to the child early on at breakfast time. The child may be allowed to eat one whenever he or she wants while the other one may be saved for later in a glass jar that the child can see every day. Day after day for the duration of the month, the child may be allowed to put a chocolate in the jar but not allowed to take any out. Once the month is over and the jar is full, give the whole jar to the child and explain to him or her that this is precisely how saving money works as well. If you save a little each day, in time it snowballs into a substantial amount.
Kids must be given a small allowance so as to make them understand that their parents don’t have unlimited resources. This way they will be able to take care of their own finances and be able to buy their own treats. While giving them an allowance also make sure that at least a quarter of it is spent on their basic necessities, such as clothes and school books.
You can help your child keep a monthly expenditure journal to make him realize his or her own spending patterns for the duration of the month and how to best manage a budget on a limited income.
Allowances are fine for children eight years and older. Any younger than that and they might have problems grappling with the concept.
The child may also get bonuses on his allowances when he does household chores, such as washing dishes or laying the dinner table.
For kids ten years and older, it may be wise to let them share the costs of their expenses and upkeep. This will help install in them the concept of how hard it is to earn and how easily, hard earned amounts are spent.