7 Essential Financial Skills Every Child Should Learn

7 Essential Financial Skills Every Child Should Learn

7 Essential Financial Skills Every Child Should Learn

When taught at an age-appropriate level, kids are astute learners. This is evident in the classroom when students are taught progressively more difficult subjects like science and maths and excel at it.

7 Essential Financial Skills Every Child Should Learn

    The same holds true for topics in the real world. Given the fact that people need money to survive in the modern world, financial literacy is an incredibly important life skill to harness as early as a child’s earlier years.

    That said, financial literacy is not a one-dimensional topic; it encompasses a wide range of financial habits. Fortunately, a good chunk of these habits can be distilled into something digestible for kids to learn from and develop on their own.

    From teaching them how to save money to honing their business acumen, there are a variety of financial skills that children should learn during their early stages of life.

    Let’s take a look at seven of these essential financial skills for kids in more detail.

    1. Saving Money

    Every kid should be taught how to save money. If your child’s weekly allowance gets depleted to zero almost consistently, encourage them to adjust their spending habits to have a little bit left over—assuming that you aren’t giving them a very small allowance too.

    With the little amount that they save, urge them to put it someplace safe. For example, you can have them put the change in a piggy bank or a savings jar. You can also create a kid-friendly bank account and make the deposits yourself—or teach your child how to do so.

    The act of saving money can help your child live a financially secure life in the future.

    It sets a financially savvy mindset that encourages them to prioritise the right purchases and to save their money instead of spending it on impulse. It also promotes delayed gratification, which can help children understand the value of waiting and making thoughtful decisions.

    Saving money is a fairly simple act, and progress is usually slow, but it can be extremely gratifying to reap the fruits of progress once they see their piggy bank all filled up or see a respectable figure in their bank account.

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    2. Goal Setting

    Another crucial life skill that parents should teach their children is goal setting. Teaching your kids how to manage their money is not complete without having them visualise an end goal in mind.

    Kids can have multiple financial goals, and it’s important to differentiate them by type and timeliness.

    For instance, wanting to purchase a toy before Christmas and saving money for college tuition are both goals. They just differ in type (one being a want vs a need) and time (short-term vs long-term)

    If you have a short-term goal, it’s important to reverse engineer the goal and make micro goals to reach them. Long-term goals effectively follow the same process, except it’s over a longer span of time.

    Having a goal helps motivate individuals to remain disciplined in their financial habits. It also helps kids and parents come up with the right strategies to achieve said goals.

    Without one, it’s easy for people to spiral into making impulsive purchases and the like, which can be detrimental to one’s finances.

    3. Budgeting

    Budgeting is a life skill that’s important in all stages of life, and this holds true for the youth as well.

    Teaching children how to create a budget helps them understand how to allocate their money wisely and set spending limits.

    This budget doesn’t have to be overly complex—tracking expenses, allowances, and creating formulas of financial ratios pretty much covers the essentials of this task.

    The reason why budgeting is so important is that it helps kids gain better control of their finances. It visualises actions that are needlessly expensive—which can help you take corrective action. It also tracks historic data which kids can use to spot trends in their spending habits.

    Furthermore, making a budget also instils a sense of discipline since this task involves keeping track of your daily expenses. This discipline is a fantastic trait to have when dealing with finances in one’s later years since it helps people stay on top of their finances.

    Budgets can be built on spreadsheets like Microsoft Excel or Google Sheets. There are also many apps that offer robust budgeting tools for kids who have access to smartphones and tablets.

    4. Negotiation Skills

    An underrated but helpful financial and life skill you can teach your child is negotiation. This not only helps them in a financial sense in securing better deals, but it also teaches them to balance self-respect and communication skills since they’re essentially advocating for themselves.

    You can engage in role-play to help them navigate through a negotiation task accessible. Alternatively, you can help your child sell secondhand items and have them deal with customers trying to negotiate for their items.

    By teaching your kids how to negotiate, you can help them gain the confidence to secure better deals in the future in a mutually beneficial way, like when purchasing a secondhand car or house.

    5. Basics of Banking

    Most adults are bound to have a bank account at some point, whether to accept payment from their employer, store their savings, or both.

    If you want your child to be exposed to the ins and outs of money management through a bank, then consider opening a supplementary, kid-friendly bank account for them.

    This bank account helps give your kid a headstart in understanding and engaging in banking activities like making deposits, withdrawing money, and accruing interest earnings. This can be a great opportunity for you to teach them about all the facts surrounding banking and dealing with banks too.

    By allowing your child to use a bank account, you’re making them feel involved and responsible for their finances, which can lead them to make better financial decisions later in life.

    6. Investing

    While investing may seem like an activity for adults (and this notion is generally true—since investing in the stock market requires participants to be at least 18 years of age), there are some cases wherein children can participate in this money-growing opportunity as well.

    For instance, parents can set up a custodial brokerage account for their kids to participate in stock investing. Alternatively, parents can simply assist their child with stock investing simulators to give them a deeper understanding of the highs and lows that come with this activity.

    Furthermore, kids can also invest in things outside the stock world. For instance, parents can set up a high-yield time deposit to help grow their child’s capital through interest gains in a set time period.

    The only catch is that the kid won’t be able to withdraw before the scheduled end-of-contract date lest they get imposed with a fee.

    Investing is a vital financial skill for children since it illustrates the importance of holding for the long term and knowing when to withdraw.

    When a kid invests in an actual stock, they also feel the brunt of their decisions by the constant flux of the stock price. This can shape their future investing behaviour and help them become more informed investors.

    7. Earning Money

    As early as childhood, kids should be taught about the value of money. They should know that parents don’t have a limitless supply of funds. They should also be aware of the hard work that’s required to acquire money in the first place.

    As a parent, there are many ways you can teach the value of hard work to your kid.

    For instance, you can have them work for their allowance by assigning them chores to accomplish before they can secure the allowance. You can also consider giving them a bonus allowance for each new or strenuous chore they accomplish.

    You can also help them set up business ventures to help them earn a quick buck. These ventures can be as ubiquitous as garage sales and putting up online listings in marketplaces or as something more hard-earned like making and selling crochet creations.

    By encouraging them to earn money, they not only develop financial skills but also develop a wide range of skills relative to the hard work they’ve endured. Of course, they also benefit tangibly from the money that they’ve worked hard to earn.

    Frequently Asked Question's:

    Why is it important to teach financial literacy to children?

    Teaching financial literacy to children is crucial because it equips them with essential life skills needed to navigate the modern world. Understanding how to manage money, save, budget, and invest can help them make informed financial decisions and build a secure future.

    How can parents effectively teach their children to save money?

    Parents can encourage children to save money by providing them with a piggy bank or a savings jar and helping them set up a kid-friendly bank account. It's also beneficial to teach them the importance of saving a portion of their allowance regularly and showing them the rewards of delayed gratification.

    What are some practical ways to teach kids about budgeting?

    Teaching kids about budgeting can start with simple activities like tracking their expenses and allowances. Parents can use tools like spreadsheets or budgeting apps designed for kids. By involving children in creating a budget, they learn how to allocate their money wisely and set spending limits.

    How can children learn about the basics of banking?

    Children can learn about banking by opening a kid-friendly bank account with their parents' help. This allows them to engage in activities like making deposits, withdrawing money, and understanding interest earnings. Parents should also explain the role of banks and the importance of managing a bank account responsibly.

    Is it beneficial to teach children about investing, and how can it be done?

    Yes, teaching children about investing is beneficial as it introduces them to the concept of growing their money over time. Parents can set up custodial brokerage accounts or use stock investing simulators to educate kids about the stock market. Additionally, explaining alternative investments like high-yield time deposits can help children understand the importance of long-term financial planning.

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