As parents we do our best to give our children the various tools and skills they need to thrive when they reach adulthood. One of the most important skills young adults need is a thorough understanding of finance. However, this is often an area of knowledge which they lack, with many leaving school with next to no knowledge about banking, budgeting, interest rates, or credit cards.
There are countless stories of adults racking up significant credit card debt, or taking high interest loans having failed to understand fee structures or repayment terms. The last thing you want for your child is to begin their adult life saddled with needless debt and financial worry.
Below we look at some of the key skills children need to understand, use, and save money. With these skills, they can begin their journey into adulthood with a foundation of financial literacy.
The Value of Money
Traditionally, parents tend to exclude children from discussions about the family’s finances. Finance is stressful, so why burden your children with something out of their control? While this approach may feel comfortable, nowadays more parents are using daily decisions about managing household expenses as teachable moments.
Children need to understand that financial stability requires continuous planning, meaning a family needs to live within its means. And if you have made financial errors in the past, you can help your children avoid the same mistakes.
For younger children, providing them a list of chores with an attached monetary value is a simple but effective way to instill the understanding that money isn’t free and requires effort to earn. Ask your children what they think household expenses cost – your responses about what it really takes to run a household will probably surprise them!
Arguably, the most important financial skill of all is how to set, and stick to, an effective budget. Debt is one of the biggest causes of stress amongst adults and in many cases stems from attempting to live beyond one’s means. Budgeting in advance is a great way to avoid debt or pay it off.
With pocket money from chores, friends, and family, you can assist your child in budgeting for the new toy, game, or sporting equipment they want, so they know how much they need to save up and for how long. As they get older you can create more thorough budgets with them, including lunch fees, uniform expenses, and school trip costs.
Savings and investments
Through effective financial management and careful budgeting, building savings regularly helps you build the capital needed to make your money work for you. As your children get older, teach them the basics of saving and share your financial success stories (and lessons learned from your failures). Use what you’ve learned over the years to give them an early platform for investing in their own future.
For more in-depth financial advice for children, STEM is running ‘The Complete Financial Education For Kids – Camp.’ This camp will expand on the above topics and include a guide to banking, inflation and currencies, recognising the difference between debit, store, and credit cards, and many more topics. As part of the course, finance professionals and entrepreneurs will provide child-friendly workshops and Q & A sessions.