As a parent, how can you help your children be more financially competent? Show them by modeling how you save and manage your finances. Children grow up today in a complicated world and will eventually need to take control of their own finances. Parents may sometimes find it difficult to talk about money with their children, but having conversations about money is a first step to teaching your children to be confident about finances. Research shows that there is a link between a child’s self-control with money and their future financial health. When children develop a compulsion to spend it can lead to problems with money and debt as adults. Dr. David Whitebread and Dr. Sue Bingham, University of Cambridge, in their publication Habit Formations and Learning in Young Children (2013) said that money habits are formed in children by the time they are 7 years old.
The recommendation from the Organization for Economic Co-operation and Development (OCED) is that financial education should start as early as possible and be taught in schools. Including financial education as part of the school curriculum from an early age allows children to get skills to build responsible financial behavior. Children want discipline and boundaries, and financial discipline is important.
Budgets can help teach children that they can have fun, but there are limits and fun comes after their responsibilities have been met. One of the most important lessons to discuss with your teenager about budgeting is the difference between their wants and needs. According to OCED, national surveys have shown that young adults have the lowest levels of financial literacy. This can reflect in their inability to choose the right financial products and disinterest in accepting sound financial planning. (Source: Organization for Economic Co-operation and Development 2014)
Parents can aid their child’s learning of how to save. Start with small steps toward savings. Open a bank account for their own goals but be firm about the importance of saving. Explore opportunities to practice financial literacy in fun ways. Show your kids how to become better and more responsible savers with their earned money by modeling that behavior in your own financial life. When young people learn to delay gratification by saving for a longer-term purchase, their behavior leads to financial confidence later in life. A tough lesson for everyone, especially for young people is making them wait to buy what they want. Opening a teen checking account or giving teens a prepaid debit card can give them a chance to practice prioritizing wants and needs as they spend their own money. Financial literacy is not about the amount of money you may have it is about building good money habits now and planning for the future financially with confidence.