Explaining to children how to manage and save money can be difficult, we do not know what lessons they will make their own in the course of life and how they will put them into practice. Here are a few simple tips with which you can help your children understand how money works, how to save and why invest.
I received these teachings on money and savings in part from my father, in part I learned them during my studies and throughout my life: starting from these small shared gestures will be valuable for tackling together one of the topics that almost always is neglected in the family and to build a new financial future together.
Money does not grow on trees
This is perhaps the most important lesson of all and can be transmitted in a simple way, making sure that the children earn their weekly pocket money. Giving pocket money from an early age is important: in addition to empowering children and giving them independence, it teaches them to know the value of money, to make choices on how to spend it and to evaluate priorities well.
For younger children, getting pocket money by doing simple chores – like helping to set the table for dinner – can help understand the relationship between task and reward. Obviously, depending on the age, the tasks can become more complex and pocket money can become monthly rather than weekly.
Budget is important
When it runs out, the money does not appear automatically. When children are young, it is good to teach them to keep their pocket money for the whole week. As they grow, it is instead useful to extend the time between pocket money to two-week or monthly cycles.
If they are too young to have a bank account, a good habit is to record their expenses in a diary. When they are old enough to understand, you can show them the importance of monthly spending statistics to understand where the money is being spent.
Have savings targets
By teaching your children how to save, you need to lead by example and involve them in part of the process. You can start by establishing common savings goals to be achieved and monitored together, such as “saving for Christmas gifts” or “saving for the holidays”.
It is also essential to remember to respect the savings rules, making sure that children are updated on progress. Once a goal is achieved, checking the finish line with them will help demonstrate the power of savings and how much money can be set aside with a clear target.
Desires are not necessities
Asking the justification for each purchase, the real need and the future renunciations that will derive from it, can teach children to reason on a long-term horizon (as for investments). This is the most complex concept to transmit, but essential to be able to save. If the pocket money is spent too quickly, do not give any more money.
Never too early to invest
It can be difficult for younger children, but the earlier they learn the concept of investment, the more comfortable they will be with investment practices in future life.
A good way to deal with this is to open an investment account when your children are still very young and invest a certain amount of money every month so that it slowly starts to pile up. When they are old enough, you can examine the investment portfolio with your children, to understand what went up and down and how the investments work.